I suggest you start by reading the various blogs on the economy.
A good place to find the links is at ml-implode.com – links on the lower right.
Start with the Big Picture blog, then Calculated Risk and take your pick of the rest. Several are run by guys who spend all their time thinking about the economy and investing. Some run investment funds, some are just journalists or private investors.
Short answer – it’s a mix of the S&L crisis and Enron, but the people playing games were the big banks and the private rating agencies. They took risky mortgages, sliced them up and resold them as AAA investments – stuff as reliable as gov’t treasuries and the best municipal debt.
Since they made money selling the debt and didn’t keep the risks associated with the loan, they would take any loan, no matter how stupid.
Like say, $500K option-ARM mortgages for 2 bedroom shacks borrowed by assistant managers at McDonald’.
Now, home prices are going down, it’s a national margin call, and the banks literally don’t have enough cash to cover their losses.
So credit is becoming ever tougher to get.
Here’s the cure:
Let the recession happen. Prices have to fall to correct levels. Some banks need to fail. Capitalism needs risks as well as rewards to work.
And balance the budget, pretty soon, it’s going to be very hard to borrow any money from anyone.
