Subprime [pronounced as suhb-prahym] means being less than top quality. It should not be mistaken with Supreme [pronounced as suh-preem], which means the highest rank or the greatest.
The current world economic crisis essentially started with the subprime mortgage crisis in the United States. During the period of property boom in the US, there was a tendency to give (subprime) loans to borrowers with poor credit ratings (i.e. due to low income, no credit history, employment status etc), with the hope that the loans will eventually worked out as the loans were backed by appreciating value of the properties. Well, it did not eventually worked out as the US property market went bust and house sales continued to decline. Borrowers who are not well off (some unemployed) cannot repay their loans and eventually defaulted.
That was only part of the story. Concurrent with having given out the subprime mortgages, the financial experts performed their magic by bundling (i.e. putting together) these low quality mortgages with some other higher grade investment papers to create various forms of asset backed securities of investment grade, with insurance backing. Hence, when the subprime mortgages became bad due to high level defaults, these investments in the so-called investment grade asset backed securities became near worthless. So, the institutional investors who invested in the financial instruments linked to the subprime mortgages suffered severe losses.
Bear Sterns hedge funds were among the initial casualties, back in June 2007. The extend of losses resulting from the subprime crisis were somehow suppressed by the Americans until the second major wave of failures surfaced last week. Lehman Brothers collapsed and Merill Lynch has to be sold to Bank of America. We may be going into a long and deep economic turmoil.
Talking about the subprime crisis, I wish to relate a story told by a friend of mine sometime after March 2008 General Election. Pak Lah (as the then Finance Minister), at an international conference on investment in Malaysia, spoke about the subprime [suhb-prahym] crisis. True to Pak Lah’s ingenuity, he pronounced the crisis as supreme [suh-preem] crisis (and that too, in front of so many international institutional investors).
I guess Pak Lah had the foresight then that the subprime crisis will eventually turn out to be a supreme crisis.
However the joke was that Pak Lah must have been mistaken the word subprime with supreme and vice versa. It continued that UMNO Supreme Council was actually functioning as a Subprime Council, endorsing whatever was being dictated by the present UMNO leadership. In addition, we still have Pak Lah as the SubPrime Minister.