Tuesday, December 2, 2008

Too Much Money and Not Enough Places to Put It

An excellent newspaper article and research paper, which I quote from below, summarize what I think may be the most straightforward explanation of the financial crisis. See http://blogs.wsj.com/economics/2008/09/12. More importantly, what should we be doing now to succeed and thrive as a result of this crisis.

In short, that the boom and bust in the housing and credit market, the surge in commodity prices and the mass of debt that the U.S. owes to the rest of the world, all have a common cause. Economists Ricardo Caballero at MIT, Emmanuel Farhi at Harvard and Pierre-Olivier Gourinchas at Berkeley argue that there simply aren’t enough sound financial assets to satisfy the wealth that has built up in the world. Rapidly growing developing countries, such as India and China, and oil producing nations like Russia have amassed great fortunes in recent years. At the same time, financial markets in many such countries often lack the transparency and property rights that investors need to feel comfortable. U.S. assets are far more attractive in comparison, and so in recent years foreign investors flooded the U.S. financial markets — particularly debt markets — with cash.

But as the authors say, the real problem remains and is unlikely to go away until the world economy’s ability to generate sound store of value - rather than pure diversification - financial assets catches up with its rapid income growth.

Such financial assets will no doubt have to do much more to help promote infrastructure, trade, project finance and real, operating businesses too. So if one was to look at a region where a bank would find fertile ground to do that today, we think a place that is at the cross roads of S.E. Asia, India and Africa might just be about the perfect place, particularly when the global financial services landscape is now at a new cross road.

Welcome again, to AfrAsia Bank - based in the Mauritius International Financial Services Centre. Check out our plans to grow and serve the region with our representative office in Cape Town. See
http://www.afrasiabank.com/news_readmore.aspx?newsid=26

Next blog…
Investment trends of interest to individuals, including some recent debates on Mauritian Real Estate.

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