Conference on "Subprime Credit Crisis and its Impacts on Economies Worldwide"
Held at Save Campus on 6th March, 2012

By Professor Issouf SOUMMARE/Professor of Finance ,Faculty of Business Administration/Université Laval/CANADA
The presentation focused on five key points as follows:

-Origins of the subprime crisis
-Structure of a Mortgage-backed security (MBS)
-Impacts on the world economies
-Crisis events
-Final thoughts

1. Origine of the subprime crisis

This financial crisis starts in 2006 by a crisis in the US housing sector due to the bad quality of the mortgage loans, called subprime loans. But in reality the roots of this crisis are at the beginning years 2000 with the aggressive credit policy and the skirting of prudential rules by banks in credit area that exacerbated the crisis of the US housing sector and made it general. Then it scattered through the structured products. Few years later, the liquidity squeezes pushed banks to contract their credits to the economy.  

2.Structure of a  mortgage-backed security(MBS)  

2.1-Groups of mortgages and their respective risks

For these different groups, it appears that the risk of mortgage backed security        increases.

2.2-Different risk and Return for different Investors

We notice that highest risk associated with higher expected yield turn into highest losses

3. Impacts on the world economies

3.1-Homes foreclosures in the US

The graphic bellow shows that properties with foreclosures in the US increase progressively.

3.2- Impacts: Housing bubble and the financial crisis

The diagram bellow bring out impacts of subprime on world   economies: financial crisis  

4. Crisis events

Here it is about different crisis events that happened at the beginning of this financial crisis.

- Resignation of Stanley O'Neal, CEO Merrill Lynch (Sep. 2007) and Charles Prince, CEO Citigroup (Oct. 2007).
- Bank UK Northern Rock was nationalised on Feb. 17, 2008.
- Bear Sterns is bought by JP Morgan Chase in March 2008 for $1.2 billions with the support of the FED.
- Lehman Brothers collapsed in Sep. 2008.
- Merrill Lynch is bought by BoA in Sep. 2008 for $50 billions.
- Fannie Mae and Freddie Mac are put under oversight by the US government in Sep. 2008.
- The American biggest insurer AIG received a bail-out package of $ 85 billions from the US government in Sep. 16, 2008.
- Nationalisation of the Benelux bank Fortis on Sep. 29, 2008.
- The US government set a rescue package of $ 700 billions (TARP). Similar measures are put in place in Europe and other parts of the world.
- Continuous and major decline of the main stock indices around the world since Sep. 2008.

5.Final thoughts and discussions

Finally on the basis of the previous financial crisis analysis,   discussions were carried out on the following ideas.  

- For emerging countries like Rwanda, can constitute a good opportunity to attract more institutional investors, sovereign funds and private funds.
- Many lessons to learn for financial market regulation.
- Need to better diversify our economies in terms of products and markets.
- Reinforce more regional trade and reduce our dependencies from the wolrd biggest economies.
- New economies, the BRICS, BRICIS, … are taking over the world economy, which brings more choices for emerging economies.

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