Monday, January 19, 2015

Guest Lecture by Mr. Amogh Gothoskar

On Sunday, 11th of January 2015, Mr. Amogh Gothoskar graced the auditorium of SIMSREE with his presence. In the lecture organized by the Corporate Relations Committee, he enlightened the batch on 'Securitization and the US sub-prime mortgage crisis'. Mr Amogh, an entrepreneur since 5 years in the financial services sector and the owner and CEO of 'End to End Financial Services', spoke passionately on the topic of the financial crisis of 2007-2009.
He started the discussion by asking the batch a few basic questions on the concepts of securitization and the various types of securitization. He went on to explain the nitty-gritty of securitization and the fundamental differences between the various types. Furthermore, he spoke about the basic securitization process that was carried out in the US before the crisis and the various players that were involved in the securitization process focusing mainly on mortgage backed securities. In the build up to the explanation of the crisis, he also showed some statistics which compared securitization and land rates in the US with the rest of the world and also showed a period based comparison of the same. This helped the batch to get a rough idea of the gravity of the crisis and the sheer enormity of it.
Mr. Amogh suggested that there are many parties to be blamed and held responsible for the crisis, right from the lenders to the investment banks, as well as the rating agencies. He said this situation could have been avoided if the regulators and the rating agencies would have been more alert of what the securitization process was evolving into.
Talking about Indian investors, he said that Indian investors are generally risk averse and that has prevented such a crisis from happening in India. He also said that one of the root causes for this crisis was the risk taking nature of the American borrowers and investors. American borrowers were enticed into taking up such seemingly easy loans. Also, investors bought securities backed by those sub-prime loans in expectation of higher than normal returns. He categorized an investor's psyche into two categories viz. risk prone and risk averse. He build upon this investor psyche as the base to further explain how this enabled the lenders to sell such risky loans and how these loans got bundled up and found their way into the stock markets as securities which adversely affected the entire financial ecosystem and the real estate bubble finally burst.
In response to one of the questions during the Q&A session, he said that bailing out the big companies to mitigate the problem wasn't the ideal step as it could act as a fallback for the companies in future if they were to engage into such activities again. But in the hindsight, the US government had to bail them out to deflect a domino effect from taking place and the decision turned out to be pragmatic if not ideal. He also added that the government must be focused on creating real employment rather than artificial, temporary employment for the population. With this he ended a very fruitful and knowledge gaining session for the students of SIMSREE.

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