Whats the real problem? I hear US is in financial crisis!

@sivanj (1263)
India
September 15, 2008 6:55am CST
I read that the US is in once-in-a-century financial crisis which is now more than likely to spark a recession according to former Federal Reserve chief Alan Greenspan who said this on Sunday. Whats the real problem there? Do you have any idea about this?
2 responses
@arcideaco (1259)
• Singapore
15 Sep 08
The real problem started due to the subprime woes. House prices fell due to the biggest bubble accumulated ever. Then the situation deteriorated further when the house which people had bought with secured loans fell deeply below the valuation. That means money loaned is many times more than what they will get when they sell the house. This loan situation led to credit crunch when even the creditor took over the house, they are not able to get their money loaned to these people back, that is the mortgage. The situation then became worst when the two biggest mortgaged lender Freddie Mac and Fannie Mae loses millions. This affected the market very negatively which led to stocks sell offs by banks, institutions and major investors. Then when US Government decides to take over Fannie Mae and Freddie Mac, a new problem came with Lehman Brothers Inc as this investment giant had placed its money largely on banks and financial stocks which had plummeted. Now Lehman is looking for a buyer to inject capital for its business survival. As the economy slow globally led by US, commodity a darling play became sour as people then realized when economy slow down commodity demand will reduced. This led to commodity collapsed as seen from Toronto Stocks, energy play. I hope the above answer your question.
@Thoroughrob (11748)
• United States
15 Sep 08
The prices of gasoline, has made a big impact. All the factories are picking up and moving to foreign countries, or just closing. It is leaving all of us without jobs and no way to pay for things. We have lived on credit so long, and now we have no way to pay our bills. It is really scary. How are we going to pull out of this? We haven't even begun to see the worst yet, I am sure.