Global and local

By Staff Writer
Compare banks and save with Justmoney

Global and local

The financial crisis is a doozie, a whopper, the big kahuna of all financial crises.

Ever since the speculative Tulip Mania bubble of 1637, to the Great Depression, to now with the global Financial Crisis, the markets have been fuelled by greed filled speculation that inflates prices way above their value.

When this bubble is burst it is often preceded by a Minsky moment.

A Minsky moment is when the market collapses, often rather sharply, after 'a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money'.

This is the basis of the sub prime meltdown.

Too much greed, too much reliance on markets continuing to rise, too little attention to history.

Speculative bubbles crash when they over extend themselves.

The National Credit Act of 2007 in South Africa was a major factor in helping to cool down our credit market, and at just the right time.

The Act prevents lenders from lending 'recklessly', this means that they can't just lend to you with out doing their due diligence and being reasonably sure that you can pay back any credit that you are extended.

It means that we never got the problems caused by 'liar loans' as they have in the States. A liar loan is a document whereby some one applying for credit was able to effectively make up their financial situation, because there were no checks carried out on it.

The NCA prohibition on reckless lending, means that if they don't do a proper check on you, then they extend you credit, and they should not have, because you could not reasonably be expected to repay it, then that becomes the lenders problem.

The fact that lenders may now be held accountable for their actions, has lead them to calm down and not just chuck credit at anyone and everyone.

This is a major reason why the financial crisis, though it is here, is not as bad as in many other parts of the world.

There have been some seriously expensive responses to the financial crisis by the major economies.

Business Report looked at who is behind the meltdown. The article is in depth and looks at the various reasons that have created the crash, including more behind the scenes type analysis particularly pointing to the problem of global imbalances and the knock on effects that these cause.

The response has often been to chuck money at it, effectively printing your way out of the problem. The thing is that increasing your money supply has all sorts of effects, like hyperinflation, just ask Gideon Gono.

Yesterday, as reported in The Times Obama, signed the stimulus package, now we wait and see if it has the desired effect or it just causes further problems down the line.

 

Recent Articles

Featured Can you afford an ambulance in South Africa?

When a loved one is straddling the line between life and death, you won’t hesitate to call an ambulance. This week, Justmoney found out how much an ambulance ride costs in South Africa, whether you can refuse to get into an ambulance, and who pays the bill if you’re unconscious. 

Read more

Discovery Vitality: The impact it had on my health

It’s nearly 30 degrees outside, but my windows are closed to prevent further wildfire smoke from entering my bedroom. I’m hopping around, squatting and lunging my way into my “cardio zone” so that I can earn 200 points on Discovery Vitality and meet my weekly activity goals.

Read more

Rand runs out of steam in lead-up to budget speech

For all the foreshadowing that was done last week in terms of the two big speeches by the head of states in the United States (US) and South Africa (SA), very little happened as a direct consequence thereof.

Read more

The cover you need at every age and stage

Insurance is often neglected during people’s twenties and inflated during their forties. So, which insurance products should you pursue at which age?

Read more

Sign Up

To our weekly newsletter for advice you can bank on

Deals

President Hotel Easter Special

Price: From R1,500
When: 15 March to 30 April
Where: Cape Town

Kulula-Preskil Island Resort Special

Price: R16,999
When: 11 May -14 September
Where: Mauritius

A Touch Of Madness Tuck In Tuesday Special

Price: R70
When: Tuesdays
Where: Cape Town