Can someone SIMPLY explain the clusterf*ck that is the american economic crisis?

Put simply: Credit to purchase homes was much to easy and given to people who could not meet their mortgage payments. The net result was banks going *** up after people couldn't pay their loans.

America, the historically highest point of development of world capitalism, has been transformed into the center of world capitalism has become the center of its deepening crisis. Securitization dispersed globally the risks and made bankruptcy dangers opaque, destroying thus any creditworthiness and freezing the credit lines. Lending by banks was over-extended, sometimes 60 times more than their assets, making them now candidates to file for bankruptcy. After the Lehman Brothers debacle, the Paulson $700 billion plan was urgently introduced to buy "toxic assets» relieves the financial system from their destructive burden. It was finally voted in Congress without avoiding a political crisis- and without convincing that the plan will be ultimately effective. Even from this sum, $250 billion had urgently to be re-directed to re-capitalize and partially nationalize the 9 strongest US banks. The Paulson Plan attacks as the main problem illiquidity while the true core problem is insolvency. Derivatives and Fictitious Capital -------------------------------------- Any State intervention is totally inadequate to face the enormity of the problem produced by the over-accumulation of fictitious capital. The derivatives market expanded from a $100 trillion in 2002 to $516 trillion in BIS's estimation in 2007 or $585 trillion in other estimations! Comparatively all the real goods and services produced by all economies in the world annually, the global annual gross domestic product is less than $50 trillion, and the US annual GDP of approximately $13 trillion. It becomes crystal clear that no intervention by the State, by a central bank or by all of them in the world put together could ever control the tempest of this ocean of derivatives. ( BIS : Bank for International Settlements) The collapse of the US sub-prime market in 2007 unleashed an international financial avalanche of bankruptcies and a global credit crunch, followed by a skyrocketing rise and then a dramatic fall in oil and commodity prices, but, above all, an unstoppable slide to a synchronized world economic downturn and recession. The three decades-long finance capital globalization, after a series of shocks (1984, 1987, and 1997) ended into a catastrophe. The outright failure of so-called ‘neo-liberalism' ( its called neo -conservatism in USA), the economic dogma followed by almost every capitalist government, was epitomized by the dramatic actions taken urgently by the champions of privatizations, of Reaganomics and Thatcherism in the US and UK, themselves.

In a Nut-shell: Since WW2 (1945), The North American Economy is a consumerist economy, meaning that our economy relies on growth. But now people kept buying things on credit (I'll pay for it later), but these people dont' have the money to pay for it later. An now people are spending less, so that they can pay these debts off. And now we are buying less, and if we live in an economy where it relies on people buying, and aren't buyign as much. the economy starts to shrink...

I'll one up all of these people and give you two videos. Watch them and you'll understand how it all started, and why banks are going down. http://www.youtube.com/watch?v=sqObIAnlnIM http://www.youtube.com/watch?v=kqCktntlQak&feature

A couple people have explained the problems with too many loans being made for real estate. What compounded that is that many banks were selling insurance on packages of these loans that were owned by other investors. Insurance is a kind of bet really, and the banks were making bets badly. Mostly this was being overoptimistic, but in the same of a few bad apples like AIG, they were using their own reputation to conceal the actual risk of many loans (in order to sell more insurance). So not only is foreclosure hurting banks directly, but many of these bad bets are being called (or at risk of being called), and the banks don't have enough cash on hand to pay. So the problem of rising foreclosures is being multiplied by the fears that banks won't be able to meet their obligations... and since banks only function at all when people trust them, the fear is crippling our system for moving money around.