Some people on Wall Street became obscenely rich by simply indulging in ‘financial engineering’, which is the root cause of the crisis that has now gripped America. In what has come to be known as the ‘Home Loan Bubble’ that has recently burst, millions of subprime borrowers (those without adequate income or assets to back their borrowings) were goaded into taking easy loans to own bigger homes, vacation homes, or homes simply as a profitable investment. Speculators kept property prices rising. Financial institutions like Fannie Mae and Freddie Mac skimmed profits in the process. However, once home prices started to decline, millions of homeowners began to default on loans. Its cascading effect has now caused the collapse of the entire financial system like a house of cards.

What we in India should worry about is why and how we imported this ‘Made-in-America’ crisis. Since the advent of liberalisation and globalisation, the rich and the middle classes in our country have chosen to believe that America is the role model for India to become prosperous. A small segment of our society indeed became prosperous thanks to a model of economic growth that relied on stock market boom, fed largely by FII inflows and speculative impulses. In tandem with the stock market boom, there was also a real estate boom, fed by selling the ‘American Dream’ to India’s wealthy class. The recently built malls and gated five-star housing enclaves even have American-sounding names. But as soon as a crisis impaired the American economy, India began to feel the heat. Sensex fell from the 21st floor to the 10th. Real estate markets have slumped even more.

... contd.