Subprime mortgage crisis
In the USA loans are classified as prime and subprime. This rating is based on the customers credit. The interest is much higher for a sub prime loans because they are a higher risk. The cause of the subprime mortgage crisis is due to the housing bubble bursting (drastic drop in sales)(1 ).Thus driving demand and the price down.
This created toxic assets problem. Toxic assets are assets that over rated and their sale would cause you to lose money (2 ).
On the size of this crisis the Wall Street Journal said "The property value of U.S. homes will fall by $1.2 trillion, and 'at least' 1.4 million homeowners will lose their properties to foreclosure in 2008, according to a study released Tuesday by the U.S. Conference of Mayors and the Council for the New American City. The study, prepared by the forecasting firm Global Insight Inc., predicts a widespread and deep economic impact from ongoing housing market problems, which many expect to stretch through next year."(3 ).
Toxic assets are weighing financial institutes down and making rescue attempts more difficult. These institutions have 1 trillion in bad loans and other troubled assets. This is making it more difficult for these institutions to shake off the bad economy (4 ).
Part of the 2008 banking crisis can be tied to Clintons signing of the "Financial Services Modernization Act" that revoked sections of The 1933 Glass-Steagall Act, and later the 1956 Bank Holding Company Act. This tied with other factors such as a government keeping the interest low to increase home ownership and private industry willing to make reckless loans contributed to the banking crisis(5 ).
In 2008 under the Bush administration it was proposed that the bail out would invest $125 billion in nine major banks in the hopes they will rebuild their reserves and increase lending to consumers. Another 125 billion will be ready if needed next year, if they need it. In return the government will get "shares" in the banks and accept limitations on executive's compensation. Another 100 billion would be for covering bad assets. This would leave 350 billion to be used by Obama, for more bailing out (6 ).