$ 100 000 each would be created and sold to a cash - flush investor such as a pension fund for us $ 500 million. this is nothing new – mortgage advances have been securitised on a substantial scale for many decades. incidentally, the borrower would usually not even know that his or her mortgage loan had been securitised – the borrowers continue to send their instalments to the institution or “ mortgage originator ” which initially extended the loan. but the mortgage originator now simply passes on the instalments received to a company created to handle the pool of securitised mortgages, a “ special purpose vehicle ”, from where it is redistributed to the ultimate owner of the securitised mortgages – the pension fund in this example. numerous “ structured financial products ” were developed around the securitised mortgages. for instance, a batch of risky or sub - prime mortgage advances could be lumped together and sold off as a separate “ tranche ” which would pay a higher rate of interest than a batch of standard mortgages. furthermore, some institutions provided guarantees or partial guarantees to enhance the risk - return characteristics of some of these products. and all remained well as long as the property boom continued. loans could be extended quickly and repackaged and securitised speedily. the us housing market eventually ran out of steam around 2006 as supply started to outstrip demand, reinforced by tighter interest rates. this set in motion a chain of events in which subprime borrowers increasingly fell behind on their commitments and certain types of securitised assets and structured products started to show their true colour. as these assets stopped performing ( or, at best, paid significantly less than previously projected ) investor appetite for structured products and securitised assets diminished rapidly. this interrupted the process in which original lenders ( mortgage originators ) could so comfortably extend a loan and sell it off to somebody else to carry the credit risk. liquidity in that market evaporated rather quickly, its previously smooth - running machinery grinding to a halt. more fundamentally, investors and borrowers as well as all those institutions in between discovered that the risk premia which they had priced into a range of financial assets were grossly inadequate. this inadequacy extended beyond sub - prime mortgages, and beyond the usa only : numerous types of securities and derivatives were involved. during the credit boom, investors had struggled to understand

and oecd are looking more encouraging than just a few months ago. how permanent this improvement is, however, remains to be seen. caution is warranted, nonetheless, as temporary monetary and fiscal stimulus measures may be providing a false sense of security. as for south africa, although growth continued to contract in the second quarter of this year, the pace of contraction slowed from - 6, 4 per cent in the first quarter to - 3, 1 per cent in the second quarter. the manufacturing sector appears to be turning the corner ; the purchasing manager ’ s index seems to be steadily climbing back towards the 50 threshold. businesses and consumers are also more optimistic as reflected by the confidence indices. the composite leading indicator of the south african reserve bank has been increasing during the last three, indicating that a recovery can be expected by the end of the year. 8. conclusion in conclusion, there are encouraging signs that the global slowdown may have reached its lower turning point. there remains a high degree of uncertainty attached to the speed and extent of the recovery, however, the swift manner in which authorities reacted have certainly borne fruit. developments in the south african economy are very much influenced by global economic developments. while we lagged on the way down, it is likely that we will lag on the way up. taking cognisance of the global financial and economic environment, and domestic developments with regard to growth, monetary policy will remain primarily focused on inflation management. thank you.