What I believe in is a firm economic foundation. Something a country, a nation, can build the next level on. There are traditional Economic fundamentals that need adhering to for this to occur. Looking to our current crisis we can see what we did 30 years ago is impacting today. This means we need to be mindful of what we do today because it will be impacting on our economies in 30 years time. The first example is of borrowing from our children.We are sitting in one of history's worst economic crises and few people have not been affected with most people heavily affected. Economic cycles occur and are part and parcel of economies, but these chronic recessions are from system failures, deviating from the fundamentals.The US of A is the world's leading economy. What it does affects the rest of the world who continually keep an eye on it's situation if they want to get ahead. Needless to say much of the world can and have independently gone to pot on their own.



Sunday, August 22, 2010

Financial Regulations - leaving out the personal offenders from the fixit all.

I am having a little problem understanding how Obama’s new Financial Regulations are going to prevent another meltdown in the future


I understand the limiting of financial institutions including the repeating of not allowing irresponsible behaviour (note: was already in the CRA bill) but how is it going to prevent individual people from repeating the same credit mess. The Banks were very much to blame but also the people borrowing irresponsibly.

If your credit rating is good, better access to your own credit ratings, in theory one can gear very highly. If your credit is mediocre, you can still gear fairly well on credit. The Banks may no longer borrow off and deposit off one another, but people can still play the field. Responsible people won’t be tempted, but this current crisis tells us that there are enough irresponsible people out there who will be tempted enough to force prices up pulling in more people to the upward spiral, that will burst and crash.




There needed to be recognition of all the failures and that there were several sides to the catastrophic melt down before writing the new legislation.

Credit growth needed better controls on individual levels. They have placed ceilings on it in South Africa, a bit harsh but implemented earlier would have lessened the crunch. Much of their crisis is due to the over extending of individual borrowing. We need to see a return to a more sound level of savings to credit ratio for families.

This also means the reviewing the way mortgages are handled and seeking decent deposits on family homes from the start and later curbing abuse by limiting the extending of mortgages for personal consumption as property values climbs. Limiting these extensions to home improvements and medical emergencies is not going to expose the market.

This also will mean that tax changes and other sudden impacts such as interest hikes or fuel increases are not going to have such an impact.

I dislike the idea of excess control of individual finance, however we are going to go through this all again in the next 15 years unless all the parties are more carefully monitored. Allow for continued and strong growth without letting the reckless ruin it for the rest of us all by domino effect down the chain.
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