How does a bank turn bankrupt

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.
1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.
2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.
* The net asset of the country now = 3 dollars.
3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.
*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.
4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.
* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.
(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.
* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.
* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.
(6) Everybody has made money and everybody felt happy and prosperous.
(7) One day an evil wind blew, and an evil thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more."
(8) A also thought the same way.
(9) Nobody wanted to buy land anymore.
* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.
(10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B's net asset is still 2 dollars, his heart is palpitating.
(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.
* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar
* The net asset of the country = 3 dollars.
************ **End of the story; BUT ************ ********* ******
There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -
(1) When a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land goes up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.

Stop Loss Trigger ??

I started trading today on the BSE. Here is something I need to know.

Stop Loss Trigger Tool

The Stop Loss Trigger Tool is actually a bit of a misnomer.

This tool is most useful in protecting your profits on an open position. The Stop Loss order is a conditional order to either Buy or Sell.

The condition being that the order is activated only when that stock trades at a specific price defined by you. As is the case in any order, you will have to specify the quantity and the limit price (or market price) at which you want the order to be executed.

And in addition you will have to specify a Trigger Price.

Only if the Exchange records a trade at the price defined as Trigger price by you, will your order will be activated.

In case you choose to use a Limit price (as opposed to market price) for your Stop Loss order, you must remember the following guideline :

- For a Buy order, the limit price must be greater than or equal to the trigger price.

- For a Sell order, the limit price must be less than or equal to the trigger price.

If, for a stop loss order to buy, the trigger price is 93.00, the limit price is 95.00 and the market (last trade) price is 90.00, then this order will be released into the system once when the market price reaches or exceeds 93.00. This order will be added to the order queue at the exchange with the time of triggering as the time stamp, as a limit order to buy at Rs95.00. Till such time that the order is triggered it will stay in a separate queue at the exchange which is not visible to other market participants.

Remember even the stop loss tool is valid only for a trading day. If your stop loss order is not triggered during the trading day, it shall lapse automatically at the end of the trading session.

When do you use a Stop loss order?

The Stop Loss order is a great way for a trader to manage his exposure in the market. Lets us say that a trader wants to buy ABC company at Rs100 because he expects the price to rise to Rs120 in a short time. But he does not want to take an unnecessary risk and hence he wants to exit the trade (sell his shares) in ABC company if the price drops below Rs95.

So he first buys 100 shares at Rs100. Then to protect himself against an unexpected movement and limit his losses he would punch in a stop loss sell order for 100 shares of ABC Co. with a trigger price of Rs95. He could choose to sell with a limit price of his choice or at market price.

So if the shares of ABC drop to trade at Rs95 his order is immediately triggered and pushed into the queue for execution.

This system finds similar application in the case of short positions.

Disclosed Quantity :
The system provides a facility for entering orders with quantity conditions: DQ order allows the member to disclose only a part of the order quantity to the market. DQ (Disclosed Quantity) should not be less that 10% of the Order Quantity and at the same time should not be greater than or equal to the Order Quantity.

Planting the seeds of Love

The things we have loved and tended continue to thrive, even when we can no longer care for them.

I go grocery shopping nearly every day. We go every two weeks for a full order, but it seems I always need something just when I am about to prepare dinner. I'm not sure if I'm just absent-minded, or if I really go to the store because I meet people there. A little of both, I guess.

This day would not disappoint me. I was trying desperately to find a tomato that looked like I just picked it off the vine in my garden. In reality my garden failed miserably this year. It was all my fault. I just didn't take care of it. But now I wish I had. The prices of fresh vegetables are high and the quality low.

In frustration I finally grabbed the best one I could find. Backing away from the counter with my meager selection in hand, I wasn't paying attention.

"Oh, I'm so sorry!" I said as I nearly fell over a woman in an electric scooter. Many stores have started providing them as a courtesy to those who have difficulty getting around. I see them everywhere.

Well, except for this one, and it was right behind me.

"Oh, that's okay. I'm used to it. They need to put horns on these things," she said with a smile. "We are positioned a bit lower and somewhat out of view. They are also so quiet that often times people just don't hear us coming. But I don't know what I'd do without one."

"I was so wrapped up in trying to find a good tomato," I said.

She nodded. "The prices keep going up, too. I used to grow my own. The best in the neighborhood. But this year I just couldn’t do it any more."

"Well, I grew cherry tomatoes this year. They weren't supposed to be. They were Big Boys that never grew up," I said, laughing. She then maneuvered her way closer to find one for herself. "I'm sorry for your challenges. It must be frustrating," I added.

"Well, it all requires a change in attitude. I could spend my time thinking about what I can't do any more, or spend it on what new things I can do."

Then backing up and turning her cart so she could face me, she continued. "Sure, I loved gardening. Besides my vegetables I also planted many flowers. I learned all the tricks of the trade to make them bloom bigger and better each year. I thought my garden would look so bleak, but it's wonderful. You see, even though I can't do all the things I once did, the flowers can. The perennials keep doing what they know how to do best. They came back again all on their own. All those years of love and attention kept them strong, so my work paid off. It's like raising my children. I did all the work and now they will take over from here."

"I love your attitude," I said. "But tell me, what new thing have you discovered? You said you need to focus on new things you can do."

"Well, I can go to the grocery store and make new friends by running into perfect strangers with my cart," she said, grinning.

"Or they can fall over you when they aren't paying attention," I put in.

"What I've discovered is I can't grow flowers any more, but I can paint them. Since I can't get around as much and they are just sitting there, we are a perfect match. The annuals, the flowers I won't see in my yard because they need to be replanted each year, are as much a part of my memory as the sunsets."

"Oh, another sunset lover."

"Yes, but the great part about sunsets is, you not only remember how beautiful the sunset was, you remember when and where you saw it."

"And the flowers?"

"When I hang my flower paintings on the wall, the fresh scent lingers in my soul from years of loving them up close. Again just like raising kids," she said.

"Just like meeting you, my friend. You added beauty to my day and will brighten the dark corners of my memory just when I need it most," I told her.

The tomato was perfect with dinner.

Source: http://www.beliefnet.com/nllp/Inspiration.aspx?WT.mc_id=Inspiration03&date=10-05-2008

!! Engineer is King !!

Take 1
Two engineering students were walking across campus when onesaid, "Where did you get such a great bike?"
The second engineer replied, "Well, I was walking along yesterday minding my own business when a beautiful woman rode up on this bike. She threw the bike to the ground, took off all her clothes and said, "Take what you want."
"The second engineer nodded approvingly, "Good choice; the clothes probably wouldn't have fit."


Take 2
An architect, an artist and an engineer were discussing whether it was better to spend time with the wife or a mistress.
The architect said he enjoyed time with his wife, building a solid foundation for an enduring relationship. The artist said he enjoyed time with his mistress, because of the passion and mystery he found there. The engineer said, "I like both." "Both?" Engineer: "Yeah.
If you have a wife and a mistress, they will each assume you are spending time with the other woman, and you can go to the lab and get some work done."


Take 3
A pastor, a doctor and an engineer were waiting one morning for a particularly slow group of golfers.
The engineer fumed, "What's with these guys? We must have been waiting for 15 minutes!"
The doctor chimed in, "I don't know, but I've never seen such ineptitude! "
The pastor said, "Hey, here comes the greens-keeper. Let's have a word with him." [dramatic pause] "Hi George. Say, what's with that group ahead of us? They're rather slow, aren't they?"
The greens-keeper replied, "Oh, yes, that's a group of blind fire-fighters. They lost their sight saving our clubhouse from a fire last year, so we always let them play for free anytime." The group was silent for a moment.
The pastor said, "That's so sad. I think I will say a special prayer for them tonight."
The doctor said, "Good idea. And I'm going to contact my ophthalmologist buddy and see if there's anything he can do for them."
The engineer said, "Why can't these guys play at night?"

Ouch!!
Traditionally engineers have been viewed as geeks or nerds who do nothing but study strange kinds of things and manufacture big machines and buildings. Even nowadays when some coaching institute puts up an ad showing engineering aspirants they would put up posters of people with formal boring shirts and a metallic cap which the mechanics wear in garages. Whereas the doctors they'll show are all smart and dashing with matching colourful shirts inside their white aprons.
I mean why such discrimination against engineers. They would make serials like sanjeevani and dhadkan for doctors. Do only doctors have the charm to woo girls. And engineers are all boring people found glued to their computer screens or buried inside a pile of machines.
Come on, engineers are not like that. At least not what I've seen and known.
Then who are engineers and what are engineers. Well understanding this species is extremely difficult. However the common characteristics are:
Extreme
Whatever they do has to be on an extreme. No study for the 4-5 months of the semester and no sleep for the 4-5 days before the exams. The same student who you'll find with his torn jeans and the college t-shirt jumping out of the class(or rather bunking out of the class), impressing the panel of interviewers from the very best companies of the world.
The same stud whom you found half-conscious and fully drunk lying outside the hostel gate in the garden, can stun a gathering full of scholars while delivering a speech on consiousness.
Adaptive
Engineering students are supposed to be the most indisciplined and rude fellows on campus who are always clumsily dressed. But what happens to these guys/gals when they hit the corporate floor. They are the most smartly dressed people and present the face of India Inc.
They are as comfortable in the college-side khokha(dhaba) eating maggy sitting on the mat as they are while having lunch with their clients in a 5-star hotel.
Matter-of-factly
The 4 years of engineering teaches engineers how to learn. Learn different concepts, languages, techniques and anything else. Engineers are basically learners. Engineers doing well in CAT and other entrances are not because they are engineers but because they are good learners and can adapt to the changing situations.

To the optimist, the glass is half full. To the pessimist, the glass is half empty. To the engineer, the glass is twice as big as it needs to be.

Investment Banking - What do they do

An investment bank uses its proprietary book (own money) to lend others and invest. It started with the subprime crisis. Banks like Lehman, buy mortgage loans from other banks, and then package them to sell bonds against the loan pool. Often they add cash to make the loan pool more attractive, so that the bonds can be sold at a higher price.

Suppose mortgage was earning 6%, these bonds are sold at 4%. The difference is the spread which the investment bank earns. By selling these structured bonds, it raises money and frees capital. But when homebuyers started defaulting, these bonds lost their value. It all began like this, and then the virus spreads across markets.

3 Ways to Persuade

Aristotle (right) says, "Calm down, Plato.Campaign rhetoric isn't that bad."
The U.S. presidential campaign is kicking into high gear. That means both sides will be pulling out all of the rhetorical stops to try to persuade folks to pick their candidate. So, for a little perspective on the art of persuasion, we're turning to a political commentator unlike any on TV. We're turning to famous Greek philosopher Aristotle (384-322 BC). He wrote the book on rhetoric--called The Art of Rhetoric--way back in the 4th century BC. We asked Aristotle, how should those politicians persuade? He told us that, aside from "tortures, depositions, and the like," there are only three ways: logos, pathos, and ethos. In English, you might say logic, emotion, and character. Put it all together, and you get a reasonable argument, passionately made, by a person you trust.

Logos

Logic is an obvious one. After all, who isn't a sucker for irrefutable facts, verifiable numbers, and the inexorable march of reason across the course of a well-constructed speech? In fact, for many thinkers, including Aristotle's mentor, Plato, logos is the only legitimate way to win friends and influence people. The rest is sophistry. Logos was even more persuasive to ancient Greek philosophers, because they had a pretty expansive notion of what logos was. It could be the simple reason in the words of a speech, or it could mean the supreme reason of the universe, which all rational appeals naturally plugged into.

Pathos

Still, unlike old Plato, Aristotle was willing to look beyond strictly rational appeals. He recognized that people "do not give judgment in the same way when aggrieved as when pleased"--especially, he snobbily wrote, "audiences of limited intellectual scope and limited capacity to follow an extended chain of reasoning." Enter pathos. Let's face it, said Aristotle. If you really want to persuade people, sometimes you have to resort to emotional appeals. It's why campaigns try to wrap themselves in the flag and make you fear the other guy. It's why a winning smile and puppy-dog eyes work magic in getting your way. It's why lawyers have the saying "If the facts are on your side, pound the facts. If the law is on your side, pound the law. If neither is, pound the table." Of course, emotional appeals can take more subtle forms, too. Aristotle pointed out that eloquence itself is a kind of emotional persuasion. "Style makes the matter more persuasive," he wrote, "for the mind is tricked as though the speaker were telling the truth."

Ethos

For a reason-loving philosopher like Aristotle, admitting the power of pathos had to be hard enough. But he goes even further with ethos. "Character," he wrote, "contains almost the strongest proof of all." Quite simply, it matters who's trying to persuade you. If the person trying to sway you shows "common sense, virtue, and goodwill" (for Aristotle, an ethical trifecta), then really, aren't you more likely to believe what that person says? Aristotle thought so, and so thought that persuasive attempts must work to "establish the speaker himself as being of a certain type"--namely, the type of person you'll believe. Sometimes ethos is the only thing that matters. If, based on arcane medical tests, one doctor says you need immediate surgery, and another says you don't, how are you going to decide--except by judging who seems more credible? Similarly, lawyers put dueling experts on the stand, and politicians put dueling wonks on TV. Their reasons are obscure and technical, and only ethos makes the sale. That's why the old vaudeville philosophers used to say, "If you can fake sincerity, you've got it made."

Rohtang Tour

I went to visit Rohtang Pass while I was in Manali in month of August, 2008. It was a very unique experience for me. I was there with my mother and my maternal uncle and we enjoyed each and every bit of this journey and stay. Though I just wished if I was there with my friends as it would have been a different experience altogether. I do have many memorable moments from that journey. More than words, let's use snaps to go through the tour.



Roads on each turn seemed to end in the middle of the way. Sun was playing hide and seek that day, but it was a quite enjoyable weather while we were moving towards Rohtang.

In-Progress, keep visiting for new information and snaps !!