What is happening today is similar to what happened after the Great Depression of 1929 when the US federal government set up the Reconstruction Finance Corporation to provide credit to credit crunch-hit companies,” said Jagannadham Thunuguntla.

1. September 22, 2008
Indian Markets Trying to Understand Wall Street Changes
By Arjun Sen
New Delhi
Indian investors are still trying to evaluate the full implications of the biggest financial
restructuring in the US since the Great Depression of 1929, analysts said here Monday.”What is
happening today is similar to what happened after the Great Depression of 1929 when the US
federal government set up the Reconstruction Finance Corporation to provide credit to credit
crunch-hit companies,” said Jagannadham Thunuguntla.
Thunuguntla is the head of capital markets of India’s fourth largest share brokerage firm, the
Delhi-based SMC Group.
He was referring to the various measures that the US central bank, the Federal Reserve Bank and
the US government have announced over the last few days.
The US Fed said late Sunday it had agreed to a request by the last two major investment banks -
Goldman Sachs and Morgan Stanley - to change their status to bank holding companies.
The decision means that both Goldman and Morgan Stanley will be able not only to set up
commercial bank subsidiaries to take deposits, giving them a major resource base, but they will
also have the same access as other commercial banks to the Fed’s emergency loan programme.
“The possible downside of this decision is that they (Goldman Sachs and Morgan Stanley) may
no more be able to take the kind of risks they used to take and be aggressive investors all over
the world,” Thunuguntla said.
“They will now come under the Fed’s regulations for commercial banks that are far stricter than
the current SEC regulations applicable for investment banks,” he said.
SEC, or the Securities Exchange Commission, is the US stock market regulator.
“Various Indian companies that had benefited from their investments or were looking to benefit
will now have to evaluate the impact of this change,” he said, adding: “This is causing a great
deal of uncertainty.”
“There is also no clarity about the $700 billion that the Fed intends to spend to buy out illiquid
assets of various banks hit by the mortgage crisis,” Thunuguntla said.

2. For example, he said no one knows what the US government will do with illiquid assets after
buying them.
“There are also rumours that the US government may buy some non-mortgages with the $700
billion fund. There is no clarity on that either,” Thunuguntla said.
“The US and European markets closed positive Friday but that was after they banned short sales
in many key stocks,” said portfolio strategist and US-trained chartered financial analyst Manoj
Krishnan of Delhi-based Price Investment Management and Research Services.
The analysts said in the US markets, short selling has been banned for as many as 799 stocks.
Twenty-nine stocks have been banned in Britain, 150 in Taiwan and 59 in Canada.
“The gains are, therefore, artificial as ban on short selling is not a perfect market condition,”
Thunuguntla said.
“We don’t know what will happen once the ban goes,” echoed Krishnan.
“Till there is more clarity there will be uncertainty and despite moves to stem the crisis it may
still take some time before a strong positive trend emerges,” added Thunuguntla.
IANS | September 22, 2008