Real Estate Investor Magazine South Africa May 2013 | Page 16
COVER STORY
the propert y if the borrower defaults on
repayments, because the bank no longer has
any rights to the property that is the collateral
for a “ loan” which has been securitised
and now belongs to another entity. Quite
simply, there can be no legal case against the
defaulting borrower, because all parties have
been settled. The bank was settled when the
mortgage-backed security was sold, and the
investors were settled through an insurance
policy.
Several recent court rulings in a number of
states in the US have, essentially, declared
the practise of securitising home loans illegal,
and as a result numerous banks have stopped
foreclosure procedures on homeowners who
have defaulted on their mortgage repayments.
The implications are staggering: four million
people in the US have had their homes
repossessed illegally and the banks have been
forced to pay out $8.5 billion in settlements.
The situation in South Africa
How do these practices in the global financial
system impact South Africa?
South Africa has one of the most advanced
financial systems in the world, which is why we
survived the global economic crisis better than
most developed countries. But this does not
mean there is nothing to be concerned about.
T he fractiona l reser ve system is used
extensively in South Africa. According to
Russell Lamberti, writing on Mises.co.za/
blog, the blog of the Mises Institute South
A frica (w w w.mises.co.za): “Since 20 0 0
the SARB [South African Reserve Bank]
probably printed about R100 billion out of
thin air. This allowed the commercial banks
to use about R40 bil lion to fractiona l ly
leverage at about 40:1 and create about R1.6
trillion in additional money out of thin air
(that’s R1,600,000,000,000).” This means
that South Africa has quadrupled its money
supply in the last decade and, of course, the
value of this new money must be derived
from the money in circulation, creating
inf lation. He adds that: “Since 2000, the
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