Dream of a House

Its been 2 years since I am trying to comprehend the reason behind the financial hiccup (yes, I believe somehow, the puke is yet to come) which happened in the world financial markets. Off course all the explanations have been really confusing to a techie like me. Its as confusing as the financial instruments that the bankers of the 21st century envisioned. CDO, synthetic CDO, and what all.

One thing has been evident in this whole mess. Its the dream. The dream to own a house which was a key player and enabler. 

(Remembering a popular Hindi song - "Do deewane sheher mein , raat ho ya dopahar mein ,.....aashiyana dhoondte hain.....")

Well, its been some time I have been watching these documentaries (2 years to be precise, 1 movie too) and everywhere it has been shown that the price of the houses fell. Well, the price of the houses rose tremendously (around 2006) but why did they fell? And somehow this piece of puzzle has not been sorted out completely. May be I might not have been paying too much of attention to the finer details but I thought let me try to put this puzzle in place.

So, Why did the prices rise in first place? More buyers, less houses. Prices rise. And there comes the proposition of easy loan. And here comes more buyers. So again, supply and demand mismatch. Price again soars. But apparently , there is a catch. This so called easy loan is not as easy. Apart from the fact that they did not check the credit worthiness of the buyer, it also has something known as "Predatory Lending". (Please Google it for exact meaning). In short, confusing terms and conditions.

Even, I might not be able to pay for the house, still I am able to secure a loan on that house. I don't know how will I pay? But who cares? Let the sky falls first, then I will think. So there is a risk involved which the bankers shared though some complicated mechanism (which was unregulated). So far so good. This could have continued like the same way. More and more people could have come and bought the house. I could not find an reasoning behind as to why the house prices fell.

My first thought was that a kind of good(or bad) sense prevailed in the buyers that whatever is happening is not right. I might not be able to pay for the house. Apart from the fact that the easy loaners started defaulting on there loans. And houses were foreclosed. Suddenly there was no dearth of houses in the market. More houses less buyers. Again demand and supply mismatch and hence maybe lowering of the prices. And the risk really became a RISK to the financial system. (That the price of housing market will never  fall)

This could be just my distorted interpretation of the whole thing happened couple+1 years back. So please do not quote me in your research projects.

Shout it loud..IPO

Well, so here it goes. A big social networking company makes its rendezvous with the stock market. Hey everyone, come be a part of this dream. Become rich. Lets share this greed. So how much greed is enough will always be a philosophical question, but why a company should go public can have some objective reasoning behind it.

I try to find some reasons that hit my peanut size brain as to why will anyone take the company public.
1) Its the IN thing to take a company public :- Why not? You gain the respect of the business community a build a credibility in the market. Hey you, I have Maybach, a private Jet. What do you have? I have a public company. Yikes!!!!!!
2) Need money to expand operations :- Pretty genuine reason. But if a company is making a hell lot of profit, does it give enough grounds for needing money to expand operations?
3) Let me make common public the part of my success story :- well, I am not running a charity institution. Mind you, the first one to benefit out of a company going public for sure will be the VCs needing to take there money out and put it some other place to make even more MONEY.

Reminds me of the ABBA song, "Its a rich man's world".

Well on the same lines, why would one not take the company public? Dude, its no more a private affair. Share holders need an answer for the private jet you took for honeymooning.

Some how it makes more sense to me for a company to stay private for as long as possible and avoid this whole fanfare of going public. Business is for wealth creation. But for whom? For everyone, then I am living in a socialist world.

I am not a business thinker neither a noble prize winner in economics. Just a Techie who happened to be away from coding for sometime now and hence all the thoughts expressed above are nothing more than the ramblings of an idle brain.