AMERICA´S FINANCIAL CRISIS: LESSONS FOR AFRICA

By now, the whole world is aware of the financial mess America is facing at the moment. America, home to one of the world´s strongest economies shocked the world with a financial crisis that is almost reminiscent of the great depression of the 1930s. For years, America has enjoyed a financial system and economy that has been a model to both developed and developing nations alike. It seemed like the perfect economy- one that could never go wrong. The financial crisis now rocking the American economy is proof that America might have been hiding under a shadow for years.

In a nutshell, America´s financial mess stemmed from two reasons: Its people´s inability to live within their means and the excessive greed of its financial institutions. Americans have been known to be some of the most flamboyant and showy people in the world. Always willing to impress at any cost, they buy things they cannot afford- on debt. Many of them always want to keep up with the Joneses. In the long run, many of them end up living on debt. The financial institutions, in a bid to create profit, feed on the appetite of the Americans for credit. Needless to say, the greed of the financial institutions has become their undoing.

Though some financial experts are bound to argue that the crisis could also be blamed on poor judgment by the lenders and faulty speculations in the financial markets, I tend to disagree. Americans pride themselves as some of the smartest people in the world. Their estimations and speculations, most of the time are almost accurate and with little or no faults. Hence, I maintain that the greed of the financial services institutions played a big role in the current crisis.

The beginning of the financial crisis for America was the collapse of the housing market as a result of the high default experienced on risky mortgages, the so-called ´sub prime loans´. The sub prime loan system is one whereby Mortgage companies give loans to individuals or corporations who did not quality for them. These loans are given because of the beneficiary´s income levels or credit history. As it has turned out, many of these loans were defaulted on. Mortgage companies, banks, real estate investment firms, private investors and the government ultimately lost out since they all share the risks. Furthermore, many jobs in the financial service sector have been lost as a result of the crisis. Losses from the US Sub prime loans have been pegged at over $900 billion. Financially, the country is in a mess.

What lessons is Africa going to learn from America´s woes? A Nigerian proverb says, ´You do not ask a toad to give you a chair when you can see that it is squatting.´ The financial drama in the United States is affecting not just the United States, but Europeans countries and their financial markets as well. As a result, Africa is going to have to learn to be self-reliant for quite some time. Simply put, since America and other European countries are in a financial mess in themselves, Africa should be expecting little or no support from the West as it is so accustomed to. Financial aid will no longer be so readily available, and external loans may not be so easy to come by. Assistance from the west will be at an all time low, if there will be any at all. So, we will have to be responsible for the little we already have, and be accountable for it. African nations cannot afford to be reckless with spending, and African leaders who have been known for their excesses, while expecting the west to come to their countries´ aid may have to cut down on the flamboyance.

On a more personal front, we as Africans must shun the temptation to live above our means. Personally, I am familiar with young urban executives in Nairobi who though take home a good pay packet at the end of every month; spend money on frivolities such as expensive cars and unnecessary jewelry- on debt. It´s a good thing that the credit card culture is not easily identifiable with Africa and Africans. Let´s keep it that way. Let´s not buy things we cannot afford, accumulating debt in the long run. If for any reason many of us default, it would have an adverse domino-effect on our economy.

Also, while our banks and other financial institutions tend to be driven by an uncontrolled desire to make profit, they must learn to be modest in their quest for profit. It was an excessive desire for profit that drove many financial companies into questionable lending activities, which ultimately had an adverse effect on the economy. Our financial institutions need to make informed and careful credit decisions. While giving credits, many financial organizations in the US took securities and collaterals that could not easily be converted to cash. The result was cataclysmic- today many American banks and other financial companies hold securities and other collaterals for which buyers cannot be found. This has contributed to their crisis in no small measure.

Finally, while it may sound ominous, we must realize that if a crisis of this magnitude could catch America unawares, it could as well happen to any other country or economy-even Africa if caution is not taken. We must be careful.

Mfonobong Nsehe is a communications student at Daystar University, Kenya. E-mail: mfon.nsehe@gmail.com