1.CURRENT ISSUETHE SUBPRIME MORTGAGE CRISIS AND ITS EFFECT TOWARDS CARIBBEANSerena WilliamsKennedy AndreasCeorizan PonisChin Jo Jo Marcella LapiosLim Su Loung Pressca Eva Gasinau1

2. INTRODUCTION Sub-prime mortgages are generally for borrowerswith a low credit score which include mortgageswith very low or no down payments study underlines several effects towardCaribbean Island likely trades activities, tourismsectors, Caribbean financial institution and alsoforeign direct investment (FDI).2 3. OBJECTIVE OF STUDYThe main objective of study is; To identify the causes of subprime mortgagecrisis To determine the effects of subprime mortgagecrisis towards Caribbean3 4. CAUSES OF THE SUBPRIME MORTGAGECRISIS Housing bubble (Boom and bust in thehousing market)-the housing bubbles are happen cause ofthe US house prices rose dramatically from1998 until late 2005 (John Marshall, 2009) Homeowner speculation-approximately one million borrowers tooksubprime mortgages to finance the purchase oftheir first home.-Many homebuyers with subprime loans were4 defaulted 5. CAUSES OF THE SUBPRIME MORTGAGECRISIS High-risk mortgage loans andlending/borrowing practices-Banks offered easy access to money beforethe mortgage crisis emerged-Borrowers got into high risk mortgages Securitization practices -Ben Bernanke stated that securitizationmarketsremained eectively shut. -The relationship between securitization andthe subprime crisis relates to a fundamental fault.5 6. CAUSES OF THE SUBPRIME MORTGAGECRISIS Policy Government policies -( bubble of real estate loans)as an effect of too much liquidity placed on the market by strongly expansive monetary policy of the Fed of Greenspan. Policies of Central banks -Central bank less concerned with avoiding asset price bubbles, such as the housing bubble and dot- com bubble.6 7. CAUSES OF THE SUBPRIME MORTGAGECRISIS Inaccurate credit ratings -The myth that subprime loans went only to those with bad credit arises from overlooking the complexity of the subprime mortgage market Oversupply of US Dollars distort real economy -led to the increased of commodity prices, inflation and reduced the purchasing power parity of US dollar. making financial institutions lowering lending criteria -contributed to the subprime mortgage crisis because people could not repay their loans.7 8. CAUSES OF THE SUBPRIME MORTGAGECRISIS Deregulation opens door for subprime lending -led to new mortgage instruments and cause many borrowers failed to understand and could not afford. Reckless lending of financial institutions -allows the unsuitable borrowers to get credit8 9. CAUSES OF THE SUBPRIME MORTGAGECRISIS Globalization (new technology) and the trade deficit -the use of new technology the exploitation of cheap labor on a world scale intensified, sped-up in real time, and reached further distances. -deficit was resulting from U.S. investment exceeding its savings, or imports exceeding exports. Credit default swaps (CDS) -payments under a CDS would only be triggered by the companys failure to pay interest or principal on its debts due to bankruptcy or some other severe9liquidity issue. 10. THE EFFECT TOWARDS CARIBBEAN Financial Sector Economic growth Flow of Remittances Foreign Exchange Reserves Tourism Cost of Borrowing Foreign Direct Investment (FDI) Other Export Earnings10 11. CONCLUSION This subprime crisis which originated in theUnited States effects slowdown the wholeeconomic in the world includes developingcountries such as Caribbean. So the role of government as the intervention isnecessary and appropriate to became asintermediaries in Caribbean.11 12. THANK YOUQ&A12