the cma are not familiar with securitisation ; many mortgage and instalment sale contracts have already been securitised, but these have tended to be very straightforward “ plain vanilla ” securitisations. the international financial market turbulence has resulted in slower global economic growth, and is projected to continue doing so. recent forecasts suggest a significant slowdown in growth in the us, which is bound to spill over to the rest of the world. talk of decoupling from the united states is dodgy, at best. accordingly, cma exports – and especially those exports destined for the countries most affected by the financial turmoil – are likely to be held back to some extent. as far as the money market in the cma is concerned, liquidity has remained adequate throughout this episode of international financial market turmoil. the lack of enthusiasm to do business with other private - sector participants in the money market has not emerged in the cma. interbank lending, for instance, has continued without any disruption, and the interest rates at which interbank funds are placed have not risen significantly ( as would have happened if perceptions of risk had deteriorated ). for instance, the margin between the south african reserve bank ’ s repurchase rate and the sabor, or south african benchmark overnight rate, has not changed much over time. the turbulence prompted investors to demand higher risk premia on a wide variety of securities. securities issued by emerging - market countries were affected, and the cma was no exception. accordingly, the spread of debt instruments issued by cma governments over “ risk - free ” us treasuries have widened. however, as can be seen in the graph, this widening was mostly attributable to declining us treasury yields, which attracted investors owing to their safe - haven status. while it seems fairly safe to say that the pricing of financial instruments has been influenced by this turmoil, it is more difficult to establish what the impact has been on non - resident capital movements – in other words, the magnitude of capital flows rather than the price thereof. south africa currently runs a sizable deficit on the current account of the balance of payments, and has since the emergence of the deficit been able throughout to finance the shortfall through capital inflows. since late 2007 the composition of the flows has changed : portfolio inflows have faltered but at the same time inflows of foreign direct investment and other investment funds have picked up considerably. the turmoil has so

will persist. economic agents – and not only unsophisticated ones – may be drawn into this belief, and may adjust their behaviour accordingly. by doing so, they may well reinforce and extend the duration of the trend. translated to the us housing market, there was a fairly widespread belief that acquiring fixed property was a sure way to make a profit, because rising house prices would cover any cost of borrowing or the opportunity cost of owners ’ equity, and still leave a handsome return. this drew numerous borrowers into that market, and caused lenders to happily extend mortgage loans to such borrowers. many of these borrowers were borrowers in good standing, and their business continues to be good to this day as they continue to repay their mortgage instalments and as the market values of their fixed property continue to exceed their mortgage debt. but there were also home loans extended to very risky borrowers, with little or no income and few, if any, assets. a significant number of these were extended to so - called subprime borrowers – meaning the borrowers were of below - prime quality. ( it does not mean that they got an interest rate below the prime rate! given their riskiness they were usually charged higher - than - average interest rates. ) the “ security ” in this instance was primarily a belief in the continuation of the uptrend in property prices and the ability of homeowners to rent out these dwellings. one of the catchwords of the time says it all : ninja loans, or loans to borrowers with “ no income, no job or assets ”. according to the chairman of the board of governors of the us federal reserve – the us central bank – advances in technology, the development of credit scoring techniques and the emergence of a large secondary market significantly increased the access to mortgage finance in the us ( bernanke, 2008 : 1 ). consequently, from 1994 to 2006, subprime lending increased from an estimated us $ 35 billion or 4, 5 per cent of originations to us $ 600 billion or 20 per cent of originations. although responsible subprime lending was helpful in fostering sustainable homeownership, far too much of the lending was based on abusive, unfair or deceptive lending practices. as mortgage loans were extended, the lender initially extending the loans in many instances securitised the loan. for example, a group or pool of, say, five thousand mortgage advances with an average value of us