[Hugh R]

My albeit simplistic understanding.

Congress pushes Freddie Mac and Ginnie Mae to get more homeownership, especially to "People of Color" (I hate that term). FM/GM lower standards and start buying more junk mortgages, (remember stated income, no down payment, interest only, 40/50 year loans?) loan brokers don't care, they get a commission and sell the loans. CitiBank, et. al. buy and bundle good and bad loans and sell them off. More people can buy with junk credit, drives prices up, vicious circle. People get ARM adjustments, and can't make the monthly note, they start bailing. Bundled loans historically might have had 1% bad apples, then it was 5% maybe more, you didn't know, the bundled loans were broken up and rebundled and sold again, all of a sudden no one knows what they have that is good or bad, values on those "securities" plummet. Banks that had those re-bundled securities all of a sudden see their "Assets" plummet. Since Assets=liabilities + equity, everything goes to crap.

May simplistic take.