Wall Street Collapse

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Roaring 20s

Shares soaring high

Radio Corporation America General Electric

Dow Jones Industrial Average 1921 Aug 21: 63.9 1929 Sep 03: 381.2

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The fall

1929 Oct 24 : 260 production glut and lack of demand;information vacuum due to clogged Telphone/telex lines 1929 Nov 11: 228 margin calls Bottom in 1932 and Great Depression followed till 1942(II WW on) USA called back huge loans given to 7/5/12 Europe triggered Germanys fall

Causes of the Depression

1.

As early as 1926, there were signs that the boom was under threat this was seen in the collapse of land prices in Florida. Eventually, there were too many goods being made and not enough people to buy them.

2.

3.

Farmers had produced too much food in the 1920s, so prices for 7/5/12 their produce became steadily

Effects of the Depression

1.

Unemployment - 13 million people were out of work. Industrial production dropped by 45 per cent between 1929 and 1932. House-building fell by 80 per cent between 1929 and 1932. The entire American banking system reached the brink of collapse. From 1929 to 1932, 5,000 banks

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3.

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5. 7/5/12

New Deal

12 million unemployed 12000 people per day 20000 Co gone bankrupt 1616 banks burst 23000 people committed suicide 1 farmer out of 20 evicted per day

Individuals mistake cannot be subsidised

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Harshad Metha Scam 1992

After completing his graduation, Harshad Mehta started his working life as an employee of the New India Assurance Company. During this period his family relocated to Bombay and his brother Ashwin Mehta started to pursue graduation course in law at Lala Lajpat Rai College. His youngest brother Hitesh is a practising surgeon 7/5/12

Harshad Metha Scam 1992

In the early eighties he quit his job and sought a job with stock broker P. Ambalal affiliated to Bombay Stock Exchange (BSE) before becoming a jobber on BSE for stock broker P.D. Shukla. In 1981 he became a sub-broker for stock brokers J.L. Shah and Nandalal Sheth.
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Replacement cost theory

The shares which attracted attention were those of Associated Cement Company (ACC), write the authors. The price of ACC was bid up to Rs 10,000. For those who asked, Harsad Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which 7/5/12

BSE Senesx

July 25, 1990: The index touches the four figure mark for the first time and closes at 1,000.97 in the wake of good monsoon and corporate results. ACC's return to the dividend list also fuels the bullish sentiment.
January 15, 1992: The benchmark index crosses the 2,000 mark and closes at 2,020.18 following the bullish sentiment prevailing due to 7/5/12

April 23,1992

Journalist Sucheta Dalal in a column in The Times of India, exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking system to finance his buying. Quizing??

Acc Appolo Tyres

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Modus operandi

Ready Forward Deals

Sell with a buy commitment GOI securities Earnings: Broker Commission, Spread Broker physically carried both cash & security

Bankers Receipt
Confirms sale of securities, possession gives ownership to cash equivalent, 7/5/12 used o get loan from banks

Harshad Metha Scam 1992

Rs 4400 cr siphoned off from Banking System systematically June 5, 1992 arrested Harsahd Metha, Ashwin Metha Sudhir Metha convicted in Nov 9, 1998

Allegedly misappropriated 27 lakh shares of about 90 companies in 1992

Harshad Metha died in Thane jail Dec 31, 2001 7/5/12

Finally

Arrest and sacking of K. M. Margabandhu, then CMD of the UCO Bank; Removal from office of V. Mahadevan, one of the Managing Directors of Indias largest bank, the State Bank of India.

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The Special Court (Trial of Offences Relating to Transactions in Securities) Act 1992 Deal with the extraordinary situation arising out of the securities scam with the objective of recovering huge amounts of money lost by the banks and for restoration of public confidence in the financial system. The Custodian (Trial of Offences Relating to Transactions in Securities), Ministry of Finance is the principal administrative officer under 7/5/12

Reforms in Capital Market

SEBI -1992 Registration of Brokers Badla replaced by Carry Forward System Demutualisation of SEs, Dematerialisation, Electronic platform for trading & settlement in securities
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The Great Indian Scam

Story of the missing Rs 4,000 crore, book written by Samir K Barua and Jayanth R Varma

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