Please explain why there is a financial crisis at the moment?

please explain in the easiest and quickest way possible. its exciting isnt it, i lost about 20K... love it... hope it happens again soon Please explain why there is a financial crisis at the moment?
There was the housing price bubble which broke in jan 2006 and prices stared falling. As a result 1 in 6 houses have mortgages that are now greater than the market values of the house so when people move or can't pay they can not sell and repay the mortgage. so mortgage holders foreclose and lose money. The problem has been made much worse by a market in credit default swaps that has grow from very little to over 50 trillion dollars since 2001. A credit default swaps works like insurance and promises to pay for the loss banks or investors suffer from a security, in exchange for a fee. But the banks and other financial institutions that sold them did not have enough money to pay all that was owed when so many of the mortgages lost value, so they were about to default on their obligation. This meant that the ones that had bought them were also in trouble, because the were counting on the insurance to reduce their losses from the mortgage mess. This was bad enough but some of the swaps were sold to institutions that did not even own mortgages but were just gambling on the mortgage markets. The net result is losses in the trillions and banks world wide have become insolvent and would fail without government intervention. Since bank have become risky people do not trust them with large amounts of money which has produced a credit crunch which is about to cause the real economy to tank and make housing prices fall even more.

There is a interesting graph showing the relative growth in the swap and mortgage markets that illustrate the magnitude of the problem.

http://www.visualizingeconomics.com/2008鈥?/a>Please explain why there is a financial crisis at the moment?
yes, it is exciting. i can't wait to see what happens next and if my prediction of the stock market crashing next spring is correct. ooooo i can't wait.



on another note, sorry about your loss. we are all going through difficult economic times. The US to global financial crisis is happening mainly because of the housing bubble crash. Because of the housing bubble crash, people can not afford to pay their mortgages. many people are getting foreclosed on because they can't pay. The people can not pay because the value of their home is going lower and lower. some home values have reached the point where their mortgage is greater than their value of their home. With this in mind, people are trying to save money so that they can pay for their mortgages, and because of that business is failing. With businesses failing, people start getting let off of work, which in turn creates a situation where they can't pay their mortgages. All of this in turn affects the stock market which is why the stocks are falling.



That's basically why there is a financial crisis, all in a nutshell. Of course there is a lot more to it all, but you said the quickest and easiest way possible.



You do not have to read any of the following things if you do not want to get depressed, stressed out or angry at me, or other people around you. Few suggestions for what to do in this crisis.



1. You should check your Retirement portfolio and pull your money out of stocks because the market is going to fall. Sorry to say, you will probably see a significant loss in your savings, if you put it in stocks.



2. Get rid of any and all debt that you have as fast as you can. This is so that, if you lose your job, or lose even more money in the stock market or wherever you have put your money into, you do not go bankrupt.



3. Do not put your money in the bank. Do not put your money into commodities. Do not make risky decisions. Save your money, and stash in somewhere extremely safe in your home, if you still have a home that is.



Banks are failing because they were greedy so now they do not have money to pay everyone the money that they deposited. Because you can not put your money in the bank, or stocks, or commodities (because all the commodities i know of are going down in price). I would find somewhere in your home, to stash enough money to last you and your family for the next 5 years. maybe longer. Good luck.



And if you do not believe me, i do not blame you. Not many people do because they do not know about the truth of the situation because most of the people who know about this are trying to keep it a secret so that the general public does not panic. Panicking only make things a whole lot worse.



Sorry for making my answer so long. Look up Roubini if you want more information about the financial crisis.Please explain why there is a financial crisis at the moment?
I'm losing too but I sincerely believe I can ride it out and the stock market will come back but I just don't know how soon. As to why it has happened we have a bunch of greedy, competitive banks making loans they should not have made and an equal number of individuals signing loans they never should have gotten into. Combined with the upsurge in oil prices and the fear that banks will fail we have people taking out their savings and causing the banks to fail. In the market as soon as some "expert" declares we are in or headed for recession we sell our stocks and help to cause the recession. Everyone has a part in this.