July 27: 542 points down. July 30/31: 316 points up. August 1: 615 points down. The uncertainty has only begun, with the Sensex rising 50 points yesterday. This seesaw is here to stay and for investors who came in over the last four years, who so far have only met Mr High Returns, it is time to look at his shadow, Mr High Risk. Like it or not, Mr Risk accompanies Mr Returns. Sometimes investors think Mr Returns is their friend, and put in money as if the friendship will end if the increased investing stream ends — this is what has happened over the past four years, between May 2003 and today. At other times, investors feel close to Mr Risk and look to another entity, Mr Zero Risk, whose shadow is Mr Low Returns — the period between February 2000 and May 2003, for instance.

This uncertainty is here to stay. According to experts, the epicentre of this time’s financial earthquake with destruction across the world lies in risks in the US subprime lending market. Subprime lending is the offering of loans to borrowers who have bad credit histories and hence do not qualify for market interest rates but higher ones. Somewhat perverted in its creation, the problem doesn’t end in its creation or culmination or even with banks — critics argue that this encourages predatory practices that hurt borrowers, who, when they default, end up bankrupt; while bankers say they’re only helping citizens who otherwise would be financially excluded get credit.

... contd.