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31

Credit Rating / Credit Rating in India

« on: February 18, 2019, 01:43:37 PM »

Credit Rating in India

If we talk about an ideal world, everyone would have enough money to take care of their needs. However, facing the reality, most of us have little option but to take credit to meet our life goals, especially the ones involving a huge amount like taking a car, home, etc. To making borrowing money from bank easier, it is important to have a good credit history which is determined by not only the credit score but also the credit rating.

Credit Rating – Meaning & Functions
Credit Rating is an assessment of the borrower (be it an individual, group or company) that determines whether the borrower will be able to pay the loan back on time, as per the loan agreement.  Needless to say, a good credit rating depicts a good history of paying loans on time in the past. This credit rating influences the bank’s decision of approving your loan application at a considerate rate of interest.

It is usually expressed in alphabetical symbols. Although, it is a new concept in Indian financial market but slowly its popularity has increased. It helps investors to recognize the risk involved in lending the money and gives a fair assessment of the borrower’s creditability.

Importance of Credit Rating
Here are the benefits of credit rating:

For The Money Lenders

Better Investment Decision: No bank or money lender companies would like to give money to a risky customer. With credit rating, they get an idea about the credit worthiness of an individual or company (who is borrowing the money) and the risk factor attached with them. By evaluating this, they can make a better investment decision.
Safety Assured: High credit rating means an assurance about the safety of the money and that it will be paid back with interest on time.
For Borrowers

Easy Loan Approval: With high credit rating, you will be seen as low/no risk customer. Therefore, banks will approve your loan application easily.
Considerate Rate of Interest: You must be aware of the fact every bank offers loan at a particular range of interest rates. One of the major factors that determine the rate of interest on the loan you take is your credit history. Higher the credit rating, lower will the rate of interest.

How do Credit Ratings Work in India?
As a matter of fact, every credit rating agency has their algorithm to evaluate the credit rating. However, the major factors are credit history, credit type and duration, credit utilization, credit exposure, etc. Every month, these credit rating agencies collect credit information from partner banks and other financial institutions. Once the request for credit rating has been made, these agencies dig out the information and prepare a report based on such factors. Based on that report, they grade every individual or company and give them a credit rating. This rating is used by banks, financial institutions and investors to make a decision of investing money, buying bonds or giving loan or credit card. The better is the rating, more are the chances of getting money at payable interest rates.

Credit Rating Agencies in India
Credit rating agency is an organization that evaluates the credit worthiness of an individual, business or company who wishes to borrow money or apply for a credit card in the bank. Let’s have a look at the credit agencies in India.

CRISIL

Credit Rating Information Services of India Limited is the first credit rating agency of the country which was established in 1987. It calculates the credit worthiness of companies based on their strengths, market share, market reputation and board. It also rates companies, banks and organizations, helping investors make a better decision before investing in companies’ bonds. It offers 8 types of credit rating which are as follows:

AAA, AA, A – Good Credit Rating
BBB, BB – Average Credit Rating
B, C, D – Low Credit Rating
ICRA

Investment Information and Credit Rating Agency of India was formed in 1991 and is headquartered in Mumbai. It offers comprehensive ratings to corporates via a transparent rating system. Its rating system includes symbols which vary with the financial instruments. Here are the types of credit ratings offered by ICRA:

Bank Loan Credit Rating
Corporate Debt Rating
Corporate Governance Rating
Financial Sector Rating
Issuer Rating
Infrastructure Sector Rating
Insurance Sector Rating
Mutual Fund Rating
Public Finance Rating
Project Finance Rating
Structured Finance Rating
SME Rating
Credit Score affects your Loan & Credit Card Eligibility


CARE

Credit Analysis and Research Limited (CARE) offers a range of credit rating services in areas like debt, bank loan, corporate governance, recovery, financial sector and more. Its rating scale includes two categories – long term debt instruments and short term debt ratings.

ONICRA

Onida Individual Credit Rating Agency of India established in 1993 which offers credit assessment and credit scoring services to both individuals and businesses. Along with this, it also offers risk assessment reports to individuals, small and medium businesses and corporates. Its ratings are based on two factors – Financial Strength and Performance Capability.

SMERA

Small Medium Enterprises Rating Agency Of India Limited has two divisions – SME Ratings and Bond Ratings. It was established in 2011 and is a hub of financial professionals. It offers credit ratings in the following format:

AAA, AA, A – Low Credit Risk
BBB, BB – Moderate Credit Risk
B, C – High Credit Risk
D- Defaulted
Brickwork Ratings India Private Limited

Headquartered in Bangalore, this credit rating agency is responsible to rate bank loans, municipal corporation, capital market instrument and SMEs. Other than this, it is also responsible to grade real estate investments, hospitals, NGOs, MFI, etc. It offers various rating system depending upon the different financial instrument.

So, What’s the Difference Between Credit Rating and Credit Score?
Often, these two terms are interchanged but they are not exactly same. Here are the differences between the two:

Credit Rating is basically a credit worthiness of a business or a company. However, it is not really used to individuals like us. It gives an understanding the ability of the company. These ratings are based on corporate financial instruments and usually denoted in alphabetical symbols. Higher the rating, lower is the probability of default pays.

Whereas credit score is a number, calculated by credit bureau and given to individuals based on the credit information report. This number can be in between 300 and 900. Credit report plays an important role in loan and credit card approval process.

Source: https://www.paisabazaar.com/cibil/credit-rating/

32

Credit Rating / What are the Benefits of Credit Ratings?

« on: February 18, 2019, 01:39:33 PM »

What are the Benefits of Credit Ratings?

Credit ratings are an important tool for borrowers to gain access to loans and credit cards. Good credit ratings allow people to easily borrow money from financial institutions or public debt markets. At the consumer level, banks will usually base the terms of a loan as a function of your credit rating; this means that the better your credit rating, the better the terms of the loan typically are. If your credit rating is poor, the bank may even reject you for a loan.


At the corporate level, it is usually in the best interest of a company to look for a credit rating agency to rate its debt. Investors often times base part of their decision to buy a corporation's bonds, or even the stock, on the credit rating of the company's debt. Major credit agencies, such as Moody's or Standard and Poor's, perform this rating service for a fee. Usually, investors will look at the credit rating given by these international agencies as well as ratings given by domestic rating agencies before deciding to invest. (Learn more in "A Brief History of Credit Rating Agencies.")

Credit ratings are also important at the country level. Many countries rely on foreign investors to purchase their debt, and these investors rely heavily on the credit ratings given by the credit rating agencies. The benefits for a country of a good credit rating include being able to access funds from outside their country, and the possession of a good rating can attract other forms of financing to a country, such as foreign direct investment. For instance, a company looking to open a factory in a particular country may first look at the country's credit rating to assess its stability before deciding to invest.

Source: https://www.investopedia.com/ask/answers/09/benefits-of-credit-ratings.asp

33

Credit Rating / Tips to Improve or Maintain a High Credit Score

« on: February 18, 2019, 01:38:20 PM »

Tips to Improve or Maintain a High Credit Score

If you have great credit, one slip up can create a major hurdle for you in the future. So it's important to stay on top of things and keep your credit score as high as possible. And just because you may have bad credit now, doesn't mean you have to live with that for the rest of your life. You can improve your score, and therefore, your credit future. Here are some ways you can improve or maintain your score:

Make loan payments on time and for the correct amount.
Avoid overextending your credit. Unsolicited credit cards that arrive by mail may be tempting to use, but they won't help your credit score.
Never ignore overdue bills. If you encounter any problems repaying your debt, call your creditor to make repayment arrangements. If you tell them you are having difficulty, they may be flexible.
Be aware of what type of credit you have. Credit from financing companies can negatively affect your score.
Keep your outstanding debt as low as you can. Continually extending your credit close to your limit is viewed poorly.
Limit your number of credit applications. When your credit report is looked at, or "hit," it is viewed as a bad thing. Not all hits are viewed negatively (such as those for monitoring of accounts, or prescreens), but most are.
Credit is not built overnight. It's better to provide creditors with a longer historical time frame to review: a longer history of good credit is favored over a shorter period of good history.

The Bottom Line
The importance of credit today is significant. Overlooking this fact can be very detrimental to your financial health. Being aware of how your credit score is calculated is essential. By following the tips laid out above, you should be able to either maintain or improve your credit score. Now that you understand the importance of your credit score, here are some of the major sites you can visit to check your credit rating:

Equifax: http://www.equifax.com/
Experian: http://www.experian.com/
Trans Union: http://www.transunion.com/

Source: https://www.investopedia.com/articles/00/091800.asp

34

Credit Rating / The Importance of Your Credit Rating

« on: February 18, 2019, 01:36:22 PM »

The Importance of Your Credit Rating

People have become increasingly dependent on credit. Therefore, it's crucial that you understand personal credit reports and your credit rating or score. Here we explore what a credit score is, how it is determined, why it is important and, finally, some tips to acquire and maintain good credit.

Credit Rating Basics
When you use credit, you are borrowing money that you promise to pay back within a specified period of time. A credit score is a statistical method to determine the likelihood of an individual paying back the money he or she has borrowed.

The credit bureaus that issue these scores have different evaluation systems, each based on different factors. Some may take into consideration only the information contained in your credit report, which we look at below. The primary factors used to calculate an individual's credit score are his or her credit payment history, current debts, time length of credit history, credit mix and frequency of applications for new credit. Because the scoring systems are based on different criteria which are weighted differently, the three major credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may issue different scores for an individual, even though the scores are based on the same information.

You may hear the term FICO score in reference to your credit score — the terms are essentially synonymous. FICO is an acronym for the Fair Isaac Corporation, the creator of the software used to calculate credit scores.

Scores range between 350 (extremely high risk) and 850 (extremely low risk). Here is a breakdown of the distribution of scores for the American population in 2003:

There is another scoring method, called the VantageScore. This system was created in 2006 and is weighted differently than the FICO score. Through this method, the average of a consumer's available credit, recent credit, payment history, credit utilization, depth of credit and credit balances are considered, with the biggest weight given to payment history and credit utilization. The VantageScore range runs between 501 and 990. Anyone under 630 is deemed to have poor credit. A score between 630 and 690 is considered fair, while 690 to 720 is considered good. A score above 720 is considered excellent. There are an increasing amount of creditors who are using this method. However, it still isn't nearly as popular as the FICO system.

Credit Rating System
In addition to using credit (FICO and VantageScore) scores, most countries (including the U.S. and Canada) use a scale of 0-9 to rate your personal credit. On this scale, each number is preceded by one of two letters: "I" signifies installment credit (like home or auto financing), and "R" stands for revolving credit (such as a credit card).

What Makes Up Your Credit Score?
When you borrow money, your lender sends information to a credit bureau which details, in the form of a credit report, how well you handled your debt. From the information in the credit report, the bureau determines a credit score based on five major factors: 

Previous credit performance
Current level of indebtedness
Time credit has been in use
Types of credit available
Pursuit of new credit
Although all these factors are included in credit score calculations, they are not given equal weighting. The breakdown is as follows: 35% for payment histories; 30% for the amounts owed, or current debt level; 15% for the total length of credit history; 10% for any new credit; and 10% for the type of credit mix.

As per the formula, your credit rating is most affected by your historical propensity for paying off your debt. Although there are many ways you can improve your credit score, the factor that can boost your credit rating the most is having a past that shows you pay off your debts fairly quickly. Additionally, maintaining low levels of indebtedness (or not keeping huge balances on your credit cards or other lines of credit), having a long credit history, and refraining from constantly applying for additional credit will all help your credit score.

Although we would love to explain the exact formula for calculating the credit score, the Federal Trade Commission has a secretive approach to this formula.

Why Your Credit Rating Is Important
When you apply for a credit card, mortgage or even a phone hookup, your credit rating is checked. Credit reporting makes it possible for stores to accept checks, for banks to issue credit or debit cards and for corporations to manage their operations. Depending on your credit score, lenders will determine what risk you pose to them.

According to financial theory, increased credit risk means that a risk premium must be added to the price at which money is borrowed. Basically, if you have a poor credit score, lenders may not shun you (unless it is utterly awful); instead, they'll lend you money at a higher rate than the one paid by someone with a better credit score. The table below shows how individuals with varying credit scores will pay dramatically different interest rates on similar mortgage amounts — the difference in interest, in turn, has a large impact on the monthly payments (which pay off both interest and principal). As you can see, your credit score can affect your mortgage in many ways:

Credit Is a Fragile Thing
Being aware of your credit and your credit score is very important, especially since you can harm your credit without even being aware of it. Here's a true story of what can happen:

Paul applied for a travel reward miles card but never received any response from the credit card company. Since it was a high-limit travel card, Paul just assumed that he'd been declined and never thought about it again. More than a year later, Paul goes to the bank to inquire about a mortgage. The people at the bank pull up Paul's credit report and find a bad debt from the credit card company. According to the credit report, the company tried to collect for a year but recently wrote it off as a bad debt, reporting it as an R9, the worst score you can get. Of course, all of this is news to Paul.

Well, it turns out there was a clerical error, and Paul's apartment suite number was missing from the address the credit card company had on file. Paul had been approved for the card but never actually received it, and any subsequent correspondence didn't get through either.

So the credit card company still charged Paul the annual fee, which he didn't pay, because he didn't know the debt existed. The annual fee collected interest for a year until the credit card company wrote it off. In the end, after jumping through several fiery hoops, Paul was able to get the problem rectified, and the card company admitted fault and notified the credit-reporting agency.

The point is, even though it was a small balance due (about $150), the administration error almost got in the way of Paul getting a mortgage. Nowadays, since all data goes through computers, incorrect information can easily get onto your credit report.

Source: https://www.investopedia.com/articles/00/091800.asp

35

Credit Rating / What is credit rating and how important is it.

« on: February 18, 2019, 01:30:31 PM »

What is credit rating and how important is it while making an investment decision?

This week, rating agencies, ICRA and India Ratings and Research, downgraded IL&FS's non-convertible debentures (NCDs) and long-term loans. The downgrade has had a ripple effect - share prices of its group companies dropped, concerns are now growing about the future of the company, and it has come to light that many debt mutual fund schemes have exposure to the company.

This is not the first time a downgrade in credit ratings of a company has had widespread ramifications. In 2015, Amtek Auto was downgraded, a fall out of which was that JP Morgan Mutual Fund faced rough weather in the following months. And in 2017, credit rating agencies downgraded bonds of IDBI Bank and Reliance Communications, which led to the share prices of both companies tanking.

Credit ratings are an important parameter to consider while investing be it in fixed deposits (FDs), company deposits, NCDs or other investments. For equity, initial public offerings of shares are also rated.

What are the credit ratings?
Credit rating is an analysis of the credit risks associated with a financial instrument or a financial entity. A rating is assigned to an instrument by a credit rating agency after a comprehensive analysis of business risks, financial risks, management quality and ability to service debt.

It is a detailed report based on the financial history of borrowing or lending and creditworthiness. It helps in assessing the solvency of the entity. These ratings are assigned by credit rating agencies such as CARE Ratings, CRISIL, ICRA, India Ratings, and Research etc.

How important is credit rating?

A rating downgrade essentially means that the company's ability to service/repay that particular financial instrument has declined which in turn hampers the company's ability to borrow further. Lenders may hesitate lending to such companies and may not even roll-over (refinance) existing debt.

For instance, when selecting a company deposit to invest in, you should go for one with a high credit rating. If investing in company deposits, it is advisable to go for a deposit with a rating of AAA or at least AA, nothing lower. And if the credit rating of your deposit falls after you have invested in it, it is advisable to get out even if it means you have to pay a penalty for premature withdrawal.

If the debt mutual fund scheme you have invested in holds a security whose rating has been downgraded, the immediate fallout will be that the NAV of the scheme will be negatively impacted. However, the quantum of the impact will depend on the percentage of of that particular security in the scheme's portfolio. Obviously, the higher the exposure to the downgraded security, the stronger the negative impact on the scheme's NAV.

However, one should not base one's investment decision solely on the credit rating of an instrument or company. This is because ratings are not constant and, there is every possibility that it can change during your investment period. Credit rating should be used as one of the parameters in your decision.

Credit rating scale
There are a few important credit rating agencies companies approach to get rated. These include CRISIL, CARE Ratings, ICRA, India Ratings and Research, and BrickWorks Ratings. Here is a look at the ratings symbols used by the credit rating agencies for long-term debt instruments.

Source:https://economictimes.indiatimes.com/wealth/invest/what-is-credit-rating-and-how-important-is-it-while-making-an-investment-decision/articleshow/65806143.cms

36

Credit Rating / Rating Agency

« on: February 18, 2019, 01:22:17 PM »

Rating Agency

What is a Rating Agency?
A rating agency is a company that assesses the financial strength of companies and government entities, especially their ability to meet principal and interest payments on their debts. The rating assigned to a given debt shows an agency’s level of confidence that the borrower will honor its debt obligations as agreed. Each agency uses unique letter-based scores to indicate if a debt has a low or high default risk and the financial stability of its issuer. The debt issuers may be sovereign nations, local and state governments, special purpose institutions, companies, or non-profit organizations.

Since the financial crisis of 2008, credit agencies have been criticized for giving high credit rating to debts that later turned out to be high-risk investments. They failed to identify risks that would have warned investors against investing in certain types of debts such as mortgage-backed securities. Rating agencies have also been criticized for possible conflict of interest between them and issuers of securities. Issuers of securities pay the rating agencies for providing rating services, and therefore, the agencies may be reluctant to give very low ratings to securities issued by the people who pay their salaries.

The Big Three Credit Rating Agencies
The credit rating industry is dominated by three big agencies, which control 95% of the rating business. The top firms include Moody’s Investor Services, Standard and Poor’s (S&P), and Fitch Group. Moody’s and S& P are located in the United States, and they dominate 80% of the international market. Fitch is located in the United States and London and controls approximately 15% of the global market. Morningstar Inc. has expanded its market share in recent times and is expected to feature in the “top four rating agencies.” The U.S. Securities and Exchange Commission (SEC) identified the big three agencies as the Nationally Recognized Statistical Rating Organizations (NRSRO) in 1975.

The big three agencies came under heavy criticism after the global financial crisis for giving favorable ratings to insolvent institutions like Lehman Brothers. They were also blamed for failing to detect risky mortgage-backed securities that led to the collapse of the real estate market in the United States. In a report titled “Financial Crisis Inquiry Report,” the big three rating agencies were accused of being the enablers of the 2008 financial meltdown. In a bid to tame the market dominance of the big three, Eurozone countries have encouraged financial firms and other companies to do their own credit assessments, instead of relying on the big three rating agencies.

Role of Rating Agencies in Capital Markets
Rating agencies assess the credit risk of specific debt securities and the borrowing entities. In the bond market, a rating agency provides an independent evaluation of the creditworthiness of debt securities issued by governments and corporations. Large bond issuers receive ratings from one or two of the big three rating agencies. In the United States, the agencies are held responsible for losses resulting from inaccurate and false ratings.

The ratings are used in structured financial transactions such as asset-backed securities, mortgage-backed securities, and collateralized debt obligations. Rating agencies focus on the type of pool underlying the security and the proposed capital structure to rate structured financial products. The issuers of these products pay rating agencies to not only rate them, but also to advise them on how to structure the tranches.

Rating agencies also give ratings to sovereign borrowers, who are the largest borrowers in most financial markets. Sovereign borrowers may include national governments, state governments, municipalities, and other sovereign-supported institutions. The sovereign ratings given by a rating agency shows a sovereign’s ability to repay its debt. The ratings help governments from emerging and developing countries to issue bonds to domestic and international investors. Governments sell bonds to obtain financing from other governments and Bretton Woods institutions such as the World Bank and the International Monetary Fund.

Benefits of Rating Agencies
At the consumer level, the agency’s ratings are used by banks to determine the risk premium to be charged on loans and bonds. A poor credit rating shows that the loan has a higher risk premium, and this prompts an increase in the interest charged to individuals and entities with a low credit rating. A good credit rating allows borrowers to easily borrow money from the public debt market or financial institutions at a lower interest rate.

At the corporate level, companies planning to issue a security must find a rating agency to rate their debt. Rating agencies such as Moody’s, Standards and Poor’s, and Fitch perform the rating service for a fee. Investors rely on these ratings to decide on whether to buy or not to buy a company’s securities. Although investors can also rely on the ratings given by financial intermediaries and underwriters, ratings provided by international agencies are considered more reliable and accurate since they have access to a lot of information that is not publicly available.

At the country level, investors rely on the ratings given by the credit rating agencies to make investment decisions. Many countries sell their securities in the international market, and a good credit rating can help them access high-value investors. A favorable rating may also attract other forms of investments like foreign direct investments to a country. In addition, a low credit rating or relegation of a country from a high rating to a low rating can discourage investors from purchasing the bonds or making direct investments in the country. For example, the downgrading of Greece, Portugal, and Ireland by S&P in 2010 worsened the European sovereign debt crisis.

Credit ratings also help in the development of financial markets. Rating agencies provide risk measures for various entities, and this allows investors to understand the credit risk of various borrowers. Institutions and government entities can access credit facilities without having to go through lengthy evaluations by each lender. The ratings provided by rating agencies also serve as a benchmark for financial market regulations. Some laws now require certain public institutions investment-grade bonds, which have a rating of BBB or higher.

Source: https://corporatefinanceinstitute.com/resources/knowledge/finance/rating-agency/

37

Credit Rating / The Importance of Credit Rating Agencies

« on: February 18, 2019, 01:19:07 PM »

The Importance of Credit Rating Agencies

Credit rating agencies provide investors and debtors with important information regarding the creditworthiness of an individual, corporation, agency or even a sovereign government. The credit rating agencies help measure the quantitative and qualitative risks of these entities and allow investors to make wiser decisions by benefiting from the skills of professional risk assessment carried out by these agencies. The quantitative risk analysis carried out by credit rating agencies includes comparison of certain financial ratios with chosen benchmarks and the qualitative analysis focuses on the management character, legal, political and economic environment in a jurisdiction.

Development of Financial Markets
Credit rating agencies help provide risk measures for various entities and make it easier for financial market participants to assess and understand the credit risk of the parties involved in the investing process. Individuals can get a credit score in order to be eligible for easy access to credit cards and other loans. Institutions can borrow money easily from banks without having to go through lengthy evaluations from each individual lender separately. Also corporations and governments can issue debt in the form of corporate bonds and treasuries to attract investors based on the credit ratings.

Credit Rating Agencies Help Regulate Financial Markets
The credit ratings provided by popular rating agencies including Moody's, Standard &Poor's, and Fitch, have become a benchmark for regulation of financial markets. Legal policies require certain institutions to hold investment graded bonds. Bonds are classified to be investment graded based on their ratings by these agencies, any corporate bond with a rating higher than BBB is considered to be investment graded bond.

Estimation of Risk Premiums
The credit ratings provided by these agencies are used by various banks and financial institutions in determining the risk premium they will charge on loans and corporate bonds. A poor credit rating implies a higher risk premium with an increase in the interest rate charged to corporations and individuals with a poor credit rating. Issuers with a good credit rating are able to raise funds at a lower interest rate.

Enhanced Transparency in the Credit Markets
The credit rating agencies provide improved efficiency in the credit markets and allow for more transparency in dealings. The ratings help monitor the credit soundness of various borrowers through a set of well-defined rules.

Standardization of the Evaluation Process
Most credit agencies use their own methodology for determining credit ratings, but since only a handful of popular credit rating providers exist, this adds a great deal of standardization in the rating process. The credit ratings of different borrowers can be easily compared using ratings provided by a credit rating company and the applications can be easily sorted.

Source: https://www.sapling.com/6723240/importance-credit-rating-agencies

38

Credit Rating / Credit Rating

« on: February 18, 2019, 01:15:43 PM »

Credit Rating

Credit rating is a codified rating assigned to an issue by authorized credit rating agencies. These agencies have been promoted by well-established financial Institutions and reputed banks/finance companies. Credit rating is a relative ranking arrived at by a systematic analysis of the strengths and weaknesses of a company and debt instrument issued by the company, based on financial statements, project analysis, creditworthiness factors and future prospects of the project and the company appraised at a point of time.

Objectives of Credit Rating
Credit rating aims to:

Provide superior information to the investors at a low cost;
Provide a sound basis for proper risk-return structure;
Subject borrowers to a healthy discipline, and
Assist in the framing of public policy guidelines on institutional investment.
Thus, credit rating in financial services represent an exercise in faith building for the development of a healthy financial system.

Approaches to Credit Rating
As a technique for independent examination of the investment worth of financial securities as an input to investment decision-making, the process of credit rating usually involves use of one or more of (i) implicit judgmental approach and (ii) explicit judgmental approaches and (iii) statistical approach. While implicit judgmental follows beauty-contest approach wherein a broad range of factors concerning promoter, project, environment and instrument characteristics are considered ‘generally’. Explicit judgmental approach involves identification and measurement of he factors critical to an objective assessment of the credit/investment worthier of an instrument with a view to arriving at a numerical credit score or index. Finally, statistical approach involves, assignment of weights to each of the factors and obtaining the overall credit rating score with a view to doing away with personal bias inherent in both-explicit and implicit judgment.Credit Rating Mechanism

Significance of Credit Rating
Credit rating is always project/instrument specific. Credit rating for different financial instruments issued by the same company at the same time can be different. In the same way credit rating for similar instruments issued by the same company at different times can also be different. Credit rating is useful for investors, banks and other financial institutions and investments advisers as it helps them taking business decisions. Credit rating by an authorized competent authority gives a bird’s eye view of financial strength of an organisation and its instruments. It is of considerable help to an investor in deciding whether his investment is likely to be safe.

As financial markets have grown increasingly complex and global and borrowers base has become increasingly diversified, investors and regulators have increased their reliance on the opinions of credit rating agencies. Credit ratings attempt to provide a consistent and reasonable rank ordering of relative credit risks, with specific reference to the instrument being rated.

Credit rating can be applied in the following areas/instruments:

Equity shares
Rating for banking sector
Individual credit rating
Rating for insurance sector
New instruments, floating rate notes, index based bonds, long-term deep discount bonds, etc.
Rating of intermediaries in financial services
Securitization
Rating of companies raising funds overseas.
It is expected that credit rating will assume multi-dimensional role covering all sectors of the economy which would include rating of products, services, suppliers, customers, management schools, merchant bankers, banks, health services, schools, political parties and politicians and so on.

Methodology of Credit Rating
The process of credit rating begins with the prospective issuer approaching the rating agency for evaluation. The experts in analyzing banks should be given a free hand and they will collect data and informant and will investigate the business strength and weaknesses in detail. The entire process of rating stands on the for of confidentiality and hence even the most confidential business strategies, marketing plans, future outlook etc., are revealed to the steam of analysis.

The rating is based on the investigation analysis, study and interpretation of various factors. The world of investment is exposed to the continuous onslaught of political, economic, social and other forces which does not permit any one to understand sufficiently certainty. Hence a logical approach to systematic evaluation is compulsory and within the framework of certain common features the agencies employ different methodologies. The key factors generally considered are listed below:

1. Business Analysis or Company Analysis
This includes an analysis of industry risk, market position of the company, operating efficiency of the company and legal position of the company.

Industry risk: Nature and basis of competition, key success factors; demand supply position; structure of industry; government policies, etc.
Market position of the company within the Industry: Market share; competitive advantages, selling and distribution arrangements; product and customer diversity etc.
Operating efficiency of the company: Locational advantages; labor relationships; cost structure and manufacturing as compared to those of competition.
Legal Position: Terms of prospectus; trustees and then responsibilities; system for timely payment and for protection against forgery/fraud, etc.

2. Economic Analysis
In order to evaluate an instrument an analyst must spend a considerable time in investigating the various economic activities and also analyze the characteristics peculiar to the industry, whose issue the analyst is concerned with. It will be an error to ignore these factors as the individual companies are always exposed to changing environment and the economic activates affect corporate profits, attitudes and expectation of investors and the price of the instrument. hence the relevance of the economic variables such as growth rate, national income and expenditure cannot be ignored. The analysis, while doing the economic forecasting use surveys, various economic indicators and indices.

3. Financial Analysis
This includes an analysis of accounting, quality, earnings, protection adequacy of cash flows and financial flexibility.

Accounting Quality: Overstatement/under statement of profits; auditors qualification; methods of income recognition’s inventory valuation and depreciation policies, off balance sheet liabilities etc.
Earnings Protection: Sources of future earnings growth; profitability ratios; earnings in relation to fixed income changes.
Adequacy of cash flows: In relation to dept and fixed and working capital needs; variability of future cash flows; capital spending flexibility working capital management etc.
Financial Flexibility: Alternative financing plans in ties of stress; ability to raise funds asset redeployment.

4. Management Evaluation
Track record of the management planning and control system, depth of managerial talent, succession plans.
Evaluation of capacity to overcome adverse situations
Goals, philosophy and strategies.

5. Geographical Analysis
Location advantages and disadvantages
Backward area benefit to the company/division/unit

6. Fundamental Analysis
Fundamental analysis is essential for the assessment of finance companies. This includes an analysis of liquidity management, profitability and financial position and interest and tax sensitivity of the company.

Liquidity Management: Capital structure; term matching of assets and liabilities policy and liquid assets in relation to financing commitments and maturing deposits.
Asset Quality: Quality of the company’s credit-risk management; system for monitoring credit; sector risk; exposure to individual borrower; management of problem credits etc.
Profitability and financial position: Historic profits, spread on fund deployment revenue on non-fund based services accretion to reserves etc.
Interest and Tax sensitivity: Exposure to interest rate changes, hedge against interest rate and tax low changes, etc.

Country’s Credit Rating
Country’s credit rating denotes its ability to source debt from the international market at a reasonable cost. Low rated nations will have discounts, offer high yield and are treated as risky investment. Risk relates to default. Country’s credit rating involves evaluation of external financial accounts and macro economic factors and is directed towards future trends. Credit rating of any country involves evaluation of:

Economic growth and development : Gross national product and gross domestic product, population growth, Infrastructure development, good financial management, saving growth rate, industrial production, agricultural production, growth of services sector etc.
Balance of trade and balance of payments : Export products, export prices, diversification of products and export market, global competition, import substitution, etc.
Debt service ratio : This indicates the country’s external vulnerability. This is a ratio of external debt to total external earnings including export earning and earning from tourism, etc.
Debt composition : Soft loans, commercial borrowings, interest rate structure, proportion of external debt.
Liquidity : Level of reserves, foreign exchange reserves, import coverage ratio, currency backed by assets such as gold.
Political and internal stability : Socio-religious conflicts, majority government strong opposition, unequal economic distribution, relations with neighboring countries, political factors are not predictable and is prone to unexpected events.
Inflation and price stability.
Political challenges, economic transformation and policy consensus, fiscal imbalances and imposing public sector debt burdens are all factors which enhance or inhibit the credit rating of a country while political and economic forces are clearly a key determination of sovereign credit risk in emerging market countries, the financial pressures due to fiscal indiscipline pose threat to liquidity problems and default. Fiscal control is the key indicator of improving or deteriorating credit quality.

Drawbacks of Credit Rating
Following are some of the drawbacks of credit rating:

The ratings process attempts to provide a guidance to investors/creditors in determining the risks associated with the instrument/credit obligation. It does not attempt to provide a recommendation and does not take into account factors like market prices, personal risk/reward preferences that might influence investment decisions.
The ratings process is based on certain primitives. The agency, for instance, does not perform an audit. Instead, it has to rely solely on information provided by the user. Consequently, to the extent that the information provided is inaccurate and incomplete, the rating process is compromised.
To the extent that a certain instrument of a specific company attracts a lower rating, the company has an incentive to shop around for the best possible rating, compromising the authenticity of the rating process itself.

Credit Rating Agencies in India
The concept of credit rating has been widely discussed and debated in India in recent times. Since the setting up of the first credit rating agency. Credit Rating and Information Services of India Ltd. (CRISIL) in India in 1987, there has been a rapid growth of credit rating agencies in India. The major players in the Indian market, apart from CRISIL include Investment Information and Credit Rating agency of India Ltd. (ICRA), promoted by IDBI in 1991 and Credit Analysis and Research Ltd. (CARE), promoted by IFCI in 1994. Duff and Phelps has tied up with two Indian NBFCs to set up Duff and Phelps Credit Rating India (P) Limited in 1996.

Major International Credit Rating Agencies
As capital flows have become increasingly global and turbulence in one economy has had contagion effects across the globe, credit ratings have spread outside the domain of the home country to overseas markets. Credit ratings are in use in the financial markets of most developed economies and several emerging market economies as well.

Over time, the agencies have expanded the depth and frequency of their coverage. The leading U.S. credit rating agencies rate not ply the long-term bonds issued by corporate in the U.S., but also wide variety of other  debt instruments including, for example, municipal bonds, asset-backed securities, private placements, commercial paper programmes and bank certificates of deposit (CDs). In addition, the leading rating agencies also play a major role in evaluating sovereign ratings.

Most of the rating agencies have long had their own symbols. Some of them use alphabets; others use numbers; many use a combination of both for ranking the risk of default. The default risk varies from extremely safe to highly speculative. Gradually, major agencies has emerged to provide finer rating gradations to help investors distinguish more carefully among issuers. Standard & Poor Corporation in 1974 and Moody’s in 1982 started attaching plus and minus symbols to their ratings. Other modifications of the grading scheme-including the addition of a ‘credit watch’ category to denote that a rating is under review-have also become standard.

Source: https://www.mbaknol.com/financial-management/credit-rating/

39

Credit Rating / The Importance of Credit Reports in Business

« on: February 18, 2019, 01:07:39 PM »

The Importance of Credit Reports in Business

Entrepreneurship is one of the best jobs in the world. Almost each and every one of us aspires to run a small business that will eventually grow and become extremely profitable. However, this dream can only be true if the entrepreneur makes smart decisions and implements sound practices that positively impact the day to day running of the business.

Unlike years back when many financial institutions used to base credit decisions solely on one's personal FICO score, nowadays the credit report for your business is also considered. Therefore, it is time for business owners to build and improve the business credit score for their business in to obtain the most favorable rates and terms in financing.

If you ever dream of having a profitable and growing business enterprise, one of the key things is to make sure that you have a credit report that is creditworthy. Here is a breakdown of the top benefits of having a strong credit report for your business.

Quick Loan Approvals
One of the easiest options to get out of a financial crisis is applying for a loan from a bank or seeking alternative funding options. Unfortunately, not every business that applies for a loan is approved. Why? One of the many factors that impact a credit approval is the information or lack of information in the company' credit report.

Thus, to get quick loan approvals for your business, you must strive and ensure that your business credit report is well established and positive. The stronger the report, the faster the loan approval!

Leasing of Office Space
As someone who runs a business, you might need extra room for expansion purposes. Besides this, you may want to completely move the business to a new allocation. You are obviously going to rent office space in both situations. However, a bad credit score for your business may ruin your chances.

This is because many landlords have adopted the use of business credit reports. They first scrutinize your business credit score before allowing you in. If you have a solid credit rating for your business, then you won't have a difficult time leasing office space. Your good credit score shall save you at such times.

Attracting Other Business Investors
When an entrepreneur starts a business, the future of the business is never known. If by good luck the business prospers, there are higher chances for other entrepreneurs to come in and want to form a partnership with you. This might not happen though when the business has a low credit score.

On the other hand, due to a chain of financial struggles in the business, an entrepreneur may want to sell it off to other investors. A business with a good credit report will be a positive factor that potential buyers take into consideration. Another scenario is when you want to expand the business. An investor will come in to boost your business only after verifying and ascertaining that your business has a good credit report.

Low-Interest Rates on Loans
The interest rate is one of the costs that you pay back for taking a loan from a financial institution. Nowadays, the interest rate a business owner pays is tied to the credit score of the business. If you have a good credit score, you are going to qualify for the lowest interest rates from a bank. This is because a good credit report is a sign that you repay all your debts on time.

Therefore, it is good for business owners to work hard to improve the credit score of the business. Make sure that you pay all your bills and invoices on time, repay your loans and monitor your business credit report on a regular basis to correct any errors you may uncover.

Higher Loan Limits
The credit department of banks extends loans to businesses that have strong credit scores and profiles. A favorable business credit report clearly shows that a business can meet its financial obligations. The better the business credit report, the higher the loan limits that your business may qualify for. This means that you will be able to apply for financing in order to gain access to credit. Work on your business credit reports now and enjoy all these benefits among many others.

Source:https://www.thebalancesmb.com/the-importance-of-credit-reports-in-business-4038609

40

Credit Rating / Bond Credit Ratings

« on: February 18, 2019, 01:01:19 PM »

Bond Credit Ratings

When corporations and governments issue bonds, they typically receive a credit rating on the creditworthiness of the debt from each of the three major rating agencies: Standard & Poor’s, Moody’s, and Fitch.

These ratings incorporate a variety of factors, such as the strength of the issuer’s finances and its future prospects, and they allow investors to understand how likely a bond is to default or fail to make its interest and principal payments on time.

Rating Factors
The bond rating agencies look at specific factors including:

The strength of the issuer’s balance sheet. For a corporation, this would include the strength of its cash position and its total debt. For countries, it includes their total level of debt, debt- to-GDP ratio, and the size and directional movement of their budget deficits.
The issuer's ability to make its debt payments with the cash left over after expenses are subtracted from revenue.
The condition of the issuer's operations. For a corporation, ratings are based on current business conditions including profit margins and earnings growth, while government issuers are rated in part based on the strength of their economies.
The future economic outlook for the issuer, including the potential impact of changes to its regulatory environment, industry, ability to withstand economic adversity, tax burden, etc., or in the case of a country, its growth outlook and political environment.
Standard & Poor’s ranks bonds by placing them in 22 categories, from AAA to D. Fitch largely matches these bond credit ratings, whereas Moody’s employs a different naming convention.

In general, the lower the rating, the higher the yield since investors need to be compensated for the added risk. Also, the more highly rated a bond the less likely it is to default.

Interpreting the Ratings
A high rating doesn’t remove other risks from the equation, particularly interest rate risk. As a result, it can provide information about the issuer but can’t necessarily be used to predict how a bond will perform. However, bonds tend to rise in price when their credit ratings are upgraded and fall in price when the rating is downgraded.

How much do ratings really mean? While they provide a general guide, they shouldn't be relied upon too closely.

Bond Credit Rating Categories
With the above warning in mind, here’s an explanation of the bond credit rating categories used by S&P, with the equivalent Moody’s ratings parentheses:

AAA (Aaa): This is the highest rating, signaling an “extremely strong capacity to meet financial commitments,” in the words of S&P. The U.S. government is given this top rating by Fitch and Moody’s, while S&P rates its debt a notch lower. Four U.S. corporations, Microsoft, Exxon Mobil, Automated Data Processing, and Johnson & Johnson, have AAA ratings, while S&P ranked 10 of 59 countries AAA as of October 2017.

AA+, AA, AA- (Aa1, Aa2, Aa3): This rating category indicates that the issuer has a “very strong capacity to meet its financial commitments.” The differences from AAA are very small, and it’s very rare that bonds in these credit tiers will default. From 1981 through 2010, only 1.3 percent of global corporate bonds originally rated AA eventually went into default. Note that bonds usually experience rating downgrades prior to actual default.

A+, A, A- (A1, A2, A3): S&P says about this category: “Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.” In other words, while Microsoft or an AAA-rated government issuer could withstand a prolonged recession without losing the ability to make its debt payments, this is somewhat more in question when it comes to securities in the “A” category.

BBB+, BBB, BBB- (Baa1, Baa2, Baa3): These bonds have “adequate capacity to meet financial commitments, but are more subject to adverse economic conditions or changing circumstances.” A step down from the A rating tier, BBB- is the last tier at which a bond is still considered “investment grade.” Bonds rated below this level are considered “below investment grade” or, more commonly, “high yield,” a more risky segment of the market.

BB+, BB, BB- (Ba1, Ba2, Ba3): This is the highest rating tier within the high yield category, but a BB rating indicates a higher level of concern that deteriorating economic conditions and/or company-specific developments could hinder the issuer’s ability to meet its obligations.

B+, B, B- (B1, B2, B3): B-rated bonds can meet their current financial commitments, but their future outlook is more vulnerable to adverse developments. This helps to illustrate that credit ratings take into account not just current conditions, but also the future outlook.

CCC+, CCC, CCC- (Caa1, Caa2, Caa3): Bonds in this tier are vulnerable right now and, in S&P’s words, are “dependent on favorable business, financial and economic conditions to meet financial commitments." Fitch uses a single CCC rating, without breaking it out into the plus and minus distinctions as S&P does.

CC (Ca): Like bonds rated CCC, bonds in this tier are also vulnerable right now but face an even higher level of uncertainty.

C: C-rated bonds are considered most vulnerable to default. Often, this category is reserved for bonds in special situations, such as those in which the issuer is in bankruptcy but payments are continuing at present.

D (C): The worst rating, assigned to bonds that are already in default.

The Changing Landscape
In recent years, large companies have been more willing to embrace debt as part of an effort to increase perceived value by shareholders. In 1992, 98 U.S. companies held an AAA credit rating from Standard & Poor's. By 2016, only two companies had retained their AAA rating.

Source: https://www.thebalance.com/what-are-bond-credit-ratings-417074

41

Credit Rating / What Is a Good Credit Score?

« on: February 18, 2019, 12:56:17 PM »

What Is a Good Credit Score?

For a score with a range between 300-850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most credit scores fall between 600 and 750. Higher scores represent better credit decisions and can make creditors more confident that you will repay your future debts as agreed.

Credit scores are used by lenders, including banks providing mortgage loans, credit card companies, and even car dealerships financing auto purchases, to make decisions about whether or not to offer your credit (such as a credit card or loan) and what the terms of the offer (such as the interest rate or down payment) will be. There are many different types of credit scores. FICO® Scores and scores by VantageScore are two of the most common types of credit scores, but industry-specific scores also exist.

What Is a Good FICO Score?
One of the most well-known types of credit score are FICO Scores, created by the Fair Isaac Corporation. FICO Scores are used by many lenders, and often range from 300 to 850. Generally, a FICO Score above 670 is considered a good credit score on these models, and a score above 800 is usually perceived to be exceptional.

What Is a Good VantageScore?
Scores by VantageScore are also types of credit scores that are commonly used by lenders. The VantageScore was developed by the 3 major credit bureaus including Experian, Equifax, and TransUnion. The latest VantageScore 3.0 model uses a range between 300 and 850. A VantageScore above 700 is generally considered to be good, while above 750 is considered to be excellent.

Why Credit Scores Matter
Credit scores are decision-making tools that lenders use to help them anticipate how likely you are to repay your loan on time. Credit scores are also sometimes called risk scores because they help lenders assess the risk that you won't be able to repay the debt as agreed.

Having good credit is important because it determines whether you'll qualify for a loan. And, depending on the interest rate of the loan you qualify for, it could mean the difference between hundreds and even thousands of dollars in savings. A good credit score could also mean that you are able to rent the apartment you want, or even get cell phone service that you need.

Think of your credit scores like a report card that you might review at the end of a school term, but instead of letter grades, your activity ends up within a scoring range. However, unlike academic grades, credit scores aren't stored as part of your credit history. Rather, your score is generated each time a lender requests it, according to the credit scoring model of their choice.

Every time you set a major financial goal, like becoming a homeowner or getting a new car, your credit is likely to be a part of that financing picture. Your credit scores will help lenders determine whether or not you qualify for a loan and how good the terms of the loan will be.

However, credit scores are usually not the only things lenders will look at when deciding to extend you credit or offer you a loan. Your credit report also contains details which could be taken into consideration, such as the total amount of debt you have, the types of credit in your report, the length of time you have had credit accounts and any derogatory marks you may have. Other than your credit report and credit scores, lenders may also consider your total expenses against your monthly income (known as your debt-to-income ratio), depending on the type of loan you're seeking.

Factors That Affect Your Credit Scores
The information that impacts a credit score varies depending on the scoring model being used. Credit scores are generally affected by elements in your credit report, such as:

Payment history for loans and credit cards, including the number and severity of late payments
Credit utilization rate
Type, number and age of credit accounts
Total debt
Public records such as a bankruptcy
How many new credit accounts you've recently opened
Number of inquiries for your credit report

FICO Score Factors:
Most influential: Payment history on loans and credit cards
Highly influential: Total debt and amounts owed
Moderately influential: Length of credit history
Less influential: New credit and credit mix (the types of accounts you have)

VantageScore Factors:
Most influential: Payment history
Highly influential: Age and type of credit, percent of credit limit used
Moderately influential: Total balances and debt
Less influential: Recent credit behavior and inquiries, available credit

Credit Scores Do Not Consider the Following Information:
Your race, color, religion, national origin, sex or marital status (U. S. law prohibits credit scoring formulas from considering these facts, any receipt of public assistance or the exercise of any consumer right under the Consumer Credit Protection Act.)
Your age
Your salary, occupation, title, employer, date employed or employment history (However, lenders may consider this information in making their overall approval decisions.)
Where you live
Certain types of inquiries (requests for your credit report). The score does not count "consumer disclosure inquiry," which is a request you have made for your own credit report in order to check it. It also does not count "promotional inquiry" requests made by lenders in order to make a "preapproved" credit offer or "account review inquiry" requests made by lenders to review your account with them. Inquiries for employment purposes are also not counted.

How to Improve Your Credit Scores
If you reviewed your credit information and discovered that your credit scores aren't quite where you thought they'd be, you're not alone. Since your credit scores use information drawn from your credit report, your credit activity provides a continually-updated basis of data about how responsible you are with the credit you're currently using. At Experian, we provide information that can help you see your credit in new ways and take control of your financial future. You can learn more about:

How choices that you make can improve your credit score
Why using secured credit cards can improve your credit history
What a credit repair service can - and can't - do for your credit
How to protect or restore your good credit after major life events like marriage, divorce, or the death of a spouse
Why knowing your FICO® Score* is important when you consider making a big purchase
When you know the kinds of activities in your credit that can affect your scores, you can work to take better care of your credit, too. Things like late payments, liens or bankruptcies all have varying levels of impact in your credit scores since they're reflected on your credit report, too. Getting familiar with your credit report can help you see the impact these kind of events can have in your credit.

Minimum Credit Scores
There is no minimum credit score needed to apply for most loans or credit cards. However, you are less likely to qualify for a loan or credit card and less likely to receive favorable rates when your credit score is low. If you are trying to qualify for a conventional loan or credit card with a low credit score, you may wish to wait until your credit improves, so you can ensure you get the best rates possible.

Some mortgage servicers such as the FHA provide general guidelines for those with credit scores on the lower end:

FHA mortgage loans require a minimum of 580 or higher with a 3.5% down payment.
For FHA applicants under 580, qualification for a loan is still possible, but a 10% down payment would be required along with meeting other requirements. See FHA's site for more information.

What to Do If You Don't Have a Credit Score
In some cases, you might not have enough credit history to have a credit score. Depending on your age, there are several ways to establish credit.

If you are under 21, you must have a cosigner or be able to demonstrate that you have an adequate source of income to pay back any credit that is extended. With responsible usage, a parent cosigning a credit card (or adding you as an authorized user to one of their accounts) is a great way to help establish a positive credit history.

For others, the best way to establish credit may be to work with your bank or credit union to open an account with a small credit limit to get you started. Opening a secured credit card is another way to get started building your credit. Then, with time and good account management, a good credit history (and scores) will be within your reach.

Common Credit Score Facts
Credit Reports and Credit History
Credit scores are not included with credit reports. Additionally, credit scores are not stored as part of your credit history. Your credit score is calculated only when your credit score is requested. Your credit score can change over time, based on your credit history—including late payments, amount of available debt, and more.

Joint Accounts
Joint accounts are meant to help individuals who cannot qualify for a loan by themselves. With joint accounts, all of the joint account holders, guarantors, and/or cosigners are responsible for repaying the debt. The joint account, along with its credit history, appears on the credit report for all account holders. When all payments are made on time, the joint account can help build positive credit. However, if someone defaults on payments, all of the joint account holders will see the default on their own credit reports. Depending on the severity of the late payments and negative information, everyone's credit scores could be impacted significantly.

Marriage
When you get married, your credit scores (or reports) won't merge with your spouse's. Joint accounts you share may appear on both of your credit reports, but your credit history will remain independent.

Checking Your Own Credit
Another common question is whether checking your own credit report or score can hurt it. The answer is no. Checking your own credit scores doesn't lower them. Checking your own credit report creates a special kind of inquiry (known commonly as a soft inquiry) that isn't considered in credit score calculations. Without the risk of harming your scores by checking your credit report and scores frequently, don't steer away from viewing them as often as you need to.

Source:https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/

42

Failure Story / The Story of Steve Jobs – The Comeback King

« on: February 16, 2019, 02:14:55 PM »

The Story of Steve Jobs – The Comeback King

43

Failure Story / Jimmy Carter

« on: February 16, 2019, 02:02:23 PM »

Jimmy Carter

Jimmy Carter was the 39th president of the United States (1977-81) and later was awarded the Nobel Peace Prize in 2002.

Who Is Jimmy Carter?
Born on October 1, 1924, in Plains, Georgia, Jimmy Carter was the 39th president of the United States (1977-81) and served as the nation's chief executive during a time of serious problems at home and abroad. Carter's perceived mishandling of these issues led to defeat in his bid for reelection. He later turned to diplomacy and advocacy, for which he was awarded the Nobel Prize for Peace in 2002.

Early Life
James Earl Carter Jr. was born on October 1, 1924 in Plains, Georgia. His father, James Sr., was a hardworking peanut farmer who owned his own small plot of land as well as a warehouse and store. His mother, Bessie Lillian Gordy, was a registered nurse who in the 1920s had crossed racial divides to counsel black women on health care issues.

When Jimmy Carter was four years old, the family relocated to Archery, a town approximately two miles from Plains. It was a sparsely populated and deeply rural town, where mule-drawn wagons remained the dominant mode of transportation and electricity and indoor plumbing were still uncommon. Carter was a studious boy who avoided trouble and began working at his father's store at the age of ten. His favorite childhood pastime was sitting with his father in the evenings, listening to baseball games and politics on the battery-operated radio.

Education
Both of Carter's parents were deeply religious. They belonged to Plains Baptist Church and insisted that Carter attend Sunday school, which his father occasionally taught. Carter attended the all-white Plains High School while the area's majority black population received educations at home or at church. Despite this pervasive segregation, two of Carter's closest childhood friends were African American, as were two of the most influential adults in his life, his nanny Annie Mae Hollis and his father's worker Jack Clark.

While the Great Depression hit most of the rural South very hard, the Carters managed to prosper during these years, and by the late 1930s his father had over 200 workers employed on his farms. In 1941 Jimmy Carter became the first person from his father's side of the family to graduate from high school.

Carter studied engineering at Georgia Southwestern Junior College before joining the Naval ROTC program to continue his engineering studies at the Georgia Institute of Technology. He then applied to the highly competitive Naval Academy in Annapolis, Maryland, which accepted him to begin studies in the summer of 1943. With his reflective, introverted personality and small stature (Carter stood only five feet, nine inches tall), he did not fit in well among his fellow midshipmen. Nevertheless, Carter continued to excel at academics, graduating in the top ten percent of his class in 1946. While on leave in the summers, Carter had reconnected with a girl named Rosalynn Smith whom he had known since childhood. They married in June 1946.

The Navy assigned Jimmy Carter to work on submarines, and in the early years of their marriage, the Carters – like many a military family – moved frequently. After a training program in Norfolk, Virginia, they moved out to Pearl Harbor, Hawaii, where Carter was an electronics officer on the USS Pomfret. After subsequent postings to Groton, Connecticut; San Diego, California and Washington, D.C., in 1952 Carter was assigned to work with Admiral Hyman Rickover developing a nuclear submarine program in Schenectady, New York. The brilliant and notoriously demanding admiral made a profound impression on Carter. "I think, second to my own father, Rickover had more effect on my life than any other man," he later said.

Peanut Farm
During these years, the Carters also had three sons: John William (born 1947), James Earl Carter III (1950) and Donnel Jeffrey (1952). (The Carters later had a daughter, Amy, born in 1967). In July 1953, Carter's father passed away from pancreatic cancer and in the aftermath of his death, the farm and family business fell into disarray. Although Rosalynn initially objected, Carter moved his family back to rural Georgia so he could care for his mother and take over the family's affairs. In Georgia, Carter resuscitated the family farm and became active in community politics, winning a seat on the Sumter County Board of Education in 1955 and eventually becoming its chairman.

Accomplishments as a Southern Politician
The 1950s were a period of great change in the American South. In the landmark 1954 case Brown v. Board of Education, the United States Supreme Court unanimously ordered the desegregation of public schools, and in the aftermath of that decision, civil rights protestors vociferously demanded an end to all forms of racial discrimination. However, politics in the rural South still largely reflected the reactionary racial outlook of the "Old South." Carter was the only white man in Plains to refuse to join a segregationist group called the White Citizens' Council, and shortly afterward he found a sign on the front door of his home that read: "Coons and Carters go together."

It was not until the 1962 Supreme Court ruling in Baker v. Carr, which required that voting districts be redrawn in a way that stopped privileging rural white voters, that Carter saw an opportunity for a "new Southerner," such as he considered himself, to win political office. That same year he ran for the Georgia State Senate against a local businessman named Homer Moore. Although the initial vote showed that Moore had won the election, it was blatantly obvious that his victory was the result of widespread fraud. In one precinct, 420 ballots were cast even though only 333 were issued. Carter appealed the outcome and a Georgia judge discarded the fraudulent votes and declared Carter the winner. As a two-term state senator, Carter earned a reputation as a tough and independent politician, curbing wasteful spending and steadfastly supporting civil rights.

In 1966, after briefly considering a run for the United States House of Representatives, Carter instead decided to run for governor. However, in the midst of a white backlash to the Civil Rights Movement, Carter's liberal campaign failed to gain momentum in the Democratic primaries, and he finished a distant third place. The eventual winner was Lester Maddox, an ardent segregationist who had infamously barricaded the doors of his restaurant and brandished an axe to ward off black customers.

Governors were limited to one term under Georgia law, though, so Carter almost immediately began positioning himself for the 1970 gubernatorial election. This time around, Carter ran a campaign specifically targeted at the white rural voters who had rejected him as too liberal in 1966. Carter publicly opposed busing as a method of integrating public schools, limited public appearances with black leaders and actively courted the endorsements of several noted segregationists, including Governor Maddox. He so completely reversed his staunch commitment to civil rights that the liberal Atlanta Constitution Journal called him an "ignorant, racist, backward, ultra-conservative, red-necked South Georgia peanut farmer." Nevertheless, the strategy worked, and in 1970 Carter defeated Carl Sanders to become governor of Georgia.

Once he was elected governor, Carter largely returned to the progressive values he had promoted earlier in his career. He publicly called for an end to segregation, increased the number of black officials in state government by 25 percent and promoted education and prison reform. Carter's signature accomplishment as governor was slashing and streamlining the enormous state bureaucracy into a lean and efficient machine. However, Carter showed disdain for the niceties of political decorum and alienated many traditional Democratic allies, with whom he might otherwise have worked closely.

On the National Stage
Always forward-thinking, Carter carefully observed the national political currents of the 1970s. After the liberal George McGovern got pounded by Republican Richard Nixon in the 1972 presidential election, Carter decided the Democrats needed a centrist figure to regain the presidency in 1976. When the Watergate scandal shattered American confidence in Washington politics, Carter further concluded that the next president would need to be an outsider. He thought he fit the bill on both counts.

Jimmy Carter was one of ten candidates for the Democratic presidential nomination in 1976, and at first he was probably the least well known. However, in a time of deep frustration with establishment politicians, Carter's anonymity proved an advantage. He campaigned on such centrist themes as reducing government waste, balancing the budget and increasing government assistance to the poor. However, the centerpieces of Carter's appeal were his outsider status and his integrity. "I'll never tell a lie," Carter famously declared. "I'll never avoid a controversial issue." Another of his pithy campaign slogans was "A Leader, For a Change." These themes hit home with an electorate feeling betrayed by its own government during the Watergate scandal.

Presidency
Carter assumed the presidency in a time of considerable optimism, initially enjoying sky-high approval ratings. Symbolizing his commitment to a new kind of leadership, after his inaugural address Carter got out of his limousine to walk to the White House amongst his supporters. Carter's main domestic priority involved energy policy. With oil prices rising, and in the aftermath of the 1973 oil embargo, Carter believed it imperative to cure the United States of its dependence on foreign oil. Although Carter succeeded in decreasing foreign oil consumption by eight percent and developing huge emergency stores of oil and natural gas, the Iranian Revolution of 1979 again drove up oil prices and led to long lines at gas stations, overshadowing Carter's achievements.

Humanitarian Legacy
Despite a largely unsuccessful one-term presidency, Jimmy Carter later rehabilitated his reputation through his humanitarian efforts after leaving the White House. He is now widely considered one of the greatest ex-presidents in American history.

He has worked extensively with Habitat for Humanity and founded the Carter Presidential Center to promote human rights and alleviate suffering across the globe. In particular, Carter has worked effectively as an ex-president to develop community-based health care systems in Africa and Latin America, to oversee elections in fledgling democracies and to promote peace in the Middle East.

Source: https://www.biography.com/people/jimmy-carter-9240013

44

Failure Story / Henry Ford - A Car for the People

« on: February 16, 2019, 01:23:21 PM »

Henry Ford - A Car for the People

45

Failure Story / Thomas Edison

« on: February 16, 2019, 01:18:07 PM »

Thomas Edison

Inventor Thomas Edison created such great innovations as the practical incandescent electric light bulb and the phonograph. A savvy businessman, he held more than 1,000 patents for his inventions.

Who Was Thomas Edison?
Thomas Alva Edison (February 11, 1847 to October 18, 1931) was an American inventor who is considered one of America's leading businessmen. Edison rose from humble beginnings to work as an inventor of major technology, including the first commercially viable incandescent light bulb. He is credited today for helping to build America's economy during the Industrial Revolution.

What Did Thomas Edison Invent?
Thomas Edison’s inventions included the telegraph, the universal stock ticker, the phonograph, the first commercially practical incandescent electric light bulb, alkaline storage batteries and the Kinetograph (a camera for motion pictures).

When and Where Was Thomas Edison Born?
Inventor Thomas Edison was born on February 11, 1847, in Milan, Ohio.

Family
Thomas Edison was the youngest of seven children of Samuel and Nancy Edison. His father was an exiled political activist from Canada, while his mother was an accomplished school teacher and a major influence in Thomas’ early life.

Childhood and Education
An early bout with scarlet fever as well as ear infections left Edison with hearing difficulties in both ears as a child and nearly deaf as an adult. Edison would later recount, with variations on the story, that he lost his hearing due to a train incident in which his ears were injured. But others have tended to discount this as the sole cause of his hearing loss.

In 1854, Edison’s family moved to Port Huron, Michigan, where he attended public school for a total of 12 weeks. A hyperactive child, prone to distraction, he was deemed "difficult" by his teacher.

His mother quickly pulled him from school and taught him at home. At age 11, he showed a voracious appetite for knowledge, reading books on a wide range of subjects. In this wide-open curriculum Edison developed a process for self-education and learning independently that would serve him throughout his life.

At age 12, Edison convinced his parents to let him sell newspapers to passengers along the Grand Trunk Railroad line. Exploiting his access to the news bulletins teletyped to the station office each day, Thomas began publishing his own small newspaper, called the Grand Trunk Herald. The up-to-date articles were a hit with passengers. This was the first of what would become a long string of entrepreneurial ventures where he saw a need and capitalized on the opportunity.

Edison also used his access to the railroad to conduct chemical experiments in a small laboratory he set up in a train baggage car. During one of his experiments, a chemical fire started and the car caught fire. The conductor rushed in and struck Thomas on the side of the head, probably furthering some of his hearing loss. He was kicked off the train and forced to sell his newspapers at various stations along the route.

Edison the Telegrapher
While Edison worked for the railroad, a near-tragic event turned fortuitous for the young man. After Edison saved a three-year-old from being run over by an errant train, the child’s grateful father rewarded him by teaching him to operate a telegraph. By age 15, he had learned enough to be employed as a telegraph operator.

For the next five years, Edison traveled throughout the Midwest as an itinerant telegrapher, subbing for those who had gone to the Civil War. In his spare time, he read widely, studied and experimented with telegraph technology, and became familiar with electrical science.

In 1866, at age 19, Edison moved to Louisville, Kentucky, working for The Associated Press. The night shift allowed him to spend most of his time reading and experimenting. He developed an unrestricted style of thinking and inquiry, proving things to himself through objective examination and experimentation.

Initially, Edison excelled at his telegraph job because early Morse code was inscribed on a piece of paper, so Edison's partial deafness was no handicap. However, as the technology advanced, receivers were increasingly equipped with a sounding key, enabling telegraphers to "read" message by the sound of the clicks. This left Edison disadvantaged, with fewer and fewer opportunities for employment.

In 1868, Edison returned home to find his beloved mother was falling into mental illness and his father was out of work. The family was almost destitute. Edison realized he needed to take control of his future.

Upon the suggestion of a friend, he ventured to Boston, landing a job for the Western Union Company. At the time, Boston was America's center for science and culture, and Edison reveled in it. In his spare time, he designed and patented an electronic voting recorder for quickly tallying votes in the legislature.

However, Massachusetts lawmakers were not interested. As they explained, most legislators didn't want votes tallied quickly. They wanted time to change the minds of fellow legislators.

Thomas Edison: Inventions
In 1869, at 22 years old, Edison moved to New York City and developed his first invention, an improved stock ticker called the Universal Stock Printer, which synchronized several stock tickers' transactions. The Gold and Stock Telegraph Company was so impressed, they paid him $40,000 for the rights. With this success, he quit his work as a telegrapher to devote himself full-time to inventing.

By the early 1870s, Thomas Edison had acquired a reputation as a first-rate inventor. In 1870, he set up his first small laboratory and manufacturing facility in Newark, New Jersey, and employed several machinists.

As an independent entrepreneur, Edison formed numerous partnerships and developed products for the highest bidder. Often that was Western Union Telegraph Company, the industry leader, but just as often, it was one of Western Union's rivals.

In one such instance, Edison devised for Western Union the quadruplex telegraph, capable of transmitting two signals in two different directions on the same wire, but railroad tycoon Jay Gould snatched the invention from Western Union, paying Edison more than $100,000 in cash, bonds and stock, and generating years of litigation.

In 1876, Edison moved his expanding operations to Menlo Park, New Jersey, and built an independent industrial research facility incorporating machine shops and laboratories. That same year, Western Union encouraged him to develop a communication device to compete with Alexander Graham Bell's telephone. He never did.

However, in December of 1877, Edison developed a method for recording sound: the phonograph. Though not commercially viable for another decade, the invention brought him worldwide fame.

Thomas Edison's Light Bulb
While Thomas Edison was not the inventor of the first light bulb, he came up with the technology that helped bring it to the masses. Edison was driven to perfect a commercially practical, efficient incandescent light bulb following English inventor Humphry Davy’s invention of the first early electric arc lamp in the early 1800s.

Over the decades following Davy’s creation, scientists such as Warren de la Rue, Joseph Wilson Swan, Henry Woodward and Mathew Evans had worked to perfect electric light bulbs or tubes using a vacuum but were unsuccessful in their attempts.

After buying Woodward and Evans' patent and making improvements in his design, Edison was granted a patent for his own improved light bulb in 1879. He began to manufacture and market it for widespread use. In January 1880, Edison set out to develop a company that would deliver the electricity to power and light the cities of the world.

That same year, Edison founded the Edison Illuminating Company—the first investor-owned electric utility—which later became the General Electric Corporation. In 1881, he left Menlo Park to establish facilities in several cities where electrical systems were being installed. In 1882, the Pearl Street generating station provided 110 volts of electrical power to 59 customers in lower Manhattan.

Later Inventions & Business
In 1887, Edison built an industrial research laboratory in West Orange, New Jersey, which served as the primary research laboratory for the Edison lighting companies. He spent most of his time there, supervising the development of lighting technology and power systems. He also perfected the phonograph, and developed the motion picture camera and the alkaline storage battery.

Over the next few decades, Edison found his role as inventor transitioning to one as industrialist and business manager. The laboratory in West Orange was too large and complex for any one man to completely manage, and Edison found he was not as successful in his new role as he was in his former one.

Edison also found that much of the future development and perfection of his inventions was being conducted by university-trained mathematicians and scientists. He worked best in intimate, unstructured environments with a handful of assistants and was outspoken about his disdain for academia and corporate operations.

During the 1890s, Edison built a magnetic iron-ore processing plant in northern New Jersey that proved to be a commercial failure. Later, he was able to salvage the process into a better method for producing cement. On April 23, 1896, Edison became the first person to project a motion picture, holding the world's first motion picture screening at Koster & Bial's Music Hall in New York City.

As the automobile industry began to grow, Edison worked on developing a suitable storage battery that could power an electric car. Though the gasoline-powered engine eventually prevailed, Edison designed a battery for the self-starter on the Model T for friend and admirer Henry Ford in 1912. The system was used extensively in the auto industry for decades.

During World War I, the U.S. government asked Thomas Edison to head the Naval Consulting Board, which examined inventions submitted for military use. Edison worked on several projects, including submarine detectors and gun-location techniques. However, due to his moral indignation toward violence, he specified that he would work only on defensive weapons, later noting, "I am proud of the fact that I never invented weapons to kill."

By the end of the 1920s, Thomas Edison was in his 80s. He and his second wife, Mina, spent part of their time at their winter retreat in Fort Myers, Florida, where his friendship with automobile tycoon Henry Ford flourished and he continued to work on several projects, ranging from electric trains to finding a domestic source for natural rubber.

Patents
During his lifetime, Edison received 1,093 U.S. patents and filed an additional 500 to 600 that were unsuccessful or abandoned. He executed his first patent for his Electrographic Vote-Recorder on October 13, 1868, at the age of 21. His last patent was for an apparatus for holding objects during the electroplating process.

Thomas Edison and Nikola Tesla
Edison became embroiled in a longstanding rivalry with Nikola Tesla, an engineering visionary with academic training who worked with Edison's company for a time. The two parted ways in 1885 and would publicly clash about the use of direct current electricity, which Edison favored, vs. alternating currents, which Tesla championed. Tesla then entered into a partnership with George Westinghouse, an Edison competitor, resulting in a major business feud over electrical power.

Elephant Killing
One of the unusual - and cruel - methods Edison used to convince people of the dangers of alternating current was through public demonstrations where animals were electrocuted. One of the most infamous of these shows was the 1903 electrocution of a circus elephant named Topsy on New York's Coney Island.

Edison’s Wives and Children
In 1871 Edison married 16-year-old Mary Stilwell, who was an employee at one of his businesses. During their 13-year marriage, they had three children, Marion, Thomas and William, who himself became an inventor. In 1884, Mary died at the age of 29 of a suspected brain tumor. In 1886, Edison married Mina Miller, 19 years his junior.

When Did Thomas Edison Die?
Thomas Edison died of complications of diabetes on October 18, 1931, in his home, Glenmont, in West Orange, New Jersey. He was 84 years old. Many communities and corporations throughout the world dimmed their lights or briefly turned off their electrical power to commemorate his passing.

Edison’s Legacy
Edison's career was the quintessential rags-to-riches success story that made him a folk hero in America. An uninhibited egoist, he could be a tyrant to employees and ruthless to competitors. Though he was a publicity seeker, he didn’t socialize well and often neglected his family.

But by the time he died, Edison was one of the most well-known and respected Americans in the world. He had been at the forefront of America’s first technological revolution and set the stage for the modern electric world.

Source: https://www.biography.com/people/thomas-edison-9284349