Sub-Prime Meltdown for Dummies

Here is an excellent explanation of the sub-prime meltdown in the US from the retarted Chinese reporter's perspective:

Sub-Prime Meltdown explained

Here is a good explanation about the Sub-Prime meltdown.

After 9/11
Bush and Greenspan was afraid of economic problems
Got together and agreed to lower interest rate to stimulate economy
Fractional Reserve meant banks could lend more money than they had
Secondary market were eager to provide liquidity, so more loans were originated
After Dot Com bust, Wall Street looked for a place to park money
A flood of money and liquidity came into the Real Estate market, post Dot Com bust
A whole bunch of newbie loan sharks, er officers, er loan consultant came into the market
Leaders created Option ARM to help more folks buy a home
Effectively turning some marginal borrowers into Prime borrowers
Assumed market appreciation, since that would take care of security and LTV problem
More Sub-Prime loans written with relaxed underwriting, since lender had too much money to lend
Wall Street pushed lenders to create more loans to package and turn them into securities
Newbie loan officer, newbie underwriter, not following prudent underwriting
Disaster waiting to happen, but not surprising


THE ROAD TO SUB-PRIME MELTDOWN BEGINS

Mortgages started to reset
Marginal borrowers started to default, first the Sub-Prime and now Alt-A
Wall Street gets freaked and started pulling back liquidity
Lenders start to see more defaults and they start to freak
Lenders begin to have harder time selling their existing loan portfolio
Fannie Mae and Freddie Mac getting freaked too
Secondary market started to slow easy credit, and began tightening credit
Lenders had tougher time selling existing loans
Buyers sensed a tightening of credit
Media continued talking about Sub-prime this and that, and emotions were running high
Buyers sensed more uncertain future ahead, and began to sit on the sidelines, waiting and watching
Loan volumes of some lenders dropped off by 85% year to date
Freak conservative lenders overreact and started eliminating loan programs left and right
Buyers have a harder time finding a loan
More media bad news freaked the buyers some more
Sub-Prime problems cascade to other loan segments
Beginning to see it affect suppliers, contractors, material haulers, etc
Wall Street cutting off liquidity and easy credit
Banks over tighten underwriting, strangling off loan volume
Buyers still freaked and on the sidelines
Lenders have greater difficulty selling existing loans to secondary market


What you see is almost the mirror opposite. The first part is expansion in every way – buyers, sellers, lenders, easy credit, easy underwriting, plenty of Wall Street money, plenty of secondary market liquidity, low interest, plenty of liquidity from the Fed, and a fractional reserve system that exaggerates the expansion.

What you see in the second part, is sparked initially by mortgage resets, and defaults, as this reverses the expansion into a contraction cycle - freaked buyers, sellers, lenders, credit crunch, tight underwriting, Wall Street liquidity drying up, Secondary market liquidity slowing and tightening, some liquidity from the Fed, and the same fractional reserve system that exaggerates the contraction.

You can say we are in a market correction cycle, since the expansion cycle was exaggerated, and now the contraction cycle is exaggerated, as the market struggles to get back to a reasonably normal cycle.

It sort of reads like a haiku doesn't it?