What is the current problem on the market concerning banks?

I want to answer the question w/o putting fear, especially in the younger generation, so I will prface my remarks that everything I wirte below are possible re mass foreclosures, and credit card cancellations, higher standards for getting credit, the govt. doing everything possible to avoid a world banking collapse.

Over the last few years, particularly between 2003, and 2006 lending standards for mortgages were lowered, i.e. it became easier to get a mortgage w/o the greatest credit history, and in some cases, many in fact, no documentation was required for mortgages. The result was mass investment in the real estate market. Prices for homes zoomed up. A house selling for 125,000 in my area, in 2003, was selling for 150,000 in 2004. Now if money was that easy to make, wouldn't this be great, and wouldn't people be doing this for years and years. Many people (I am a lic. R.E. Broker) I told to not get involved, refused my advice and went and bought homes, condos etc. Many of these were speculators, not people intending to live in the homes, but make some money real quick by "flipping" i.e. selling the house real fast. It worked for a while, there was pressure for people who wanted to get in a new home "fast" to pay the inflated price, because especially in the new home market it was taking longer to build homes. Why? New emerging markets in China and India (which the generation of today will either compete with, or maybe apply for a job and wind up living there 20 years from now when I'm gone) were siphoning off large amouts of concrete (e.g. China was building a modern highway system) wood, asphalt tile shingles, copper wiring. These once easy to obtain, and cheap commodities became more expensive, and longer wait times to obtain, a home couldn't be built in 4-5 months, it would be 15 months to build a new home, so someone retiring to Fl. from Ny, had the $, didn't want to wait, paid the investor, and bought the house- which the investor didn't put up a dime for.

Lending standards had been lowered. When I was originally in real estate you had to put generally 20% down and finance 80%, or go FHA, or VA, 3% down, or assume a mortgage.

At the time I was working at a large Natl. bank and tried to transfer to the mortgage dept, from credit and collections. I was told I'd been out of R.E. too long- I was shocked that my employer had 137 different mortgage programs, then realized why all my co-workers were asking these ridiculous questions of me, the govt. had allowed banks to deregulate and loosen lending standards.

The mortgages (referred to as sub prime) were being given to people who did not understand them, not fixed at around 4% at the time, but if you had tarnished credit the loan would be adjustable, 2 % for the first two - three years- then attached to some index like the bonds- best way to describe jumped up- to 9-12%. The uneducated buyer w/two children in an apt looked like a great deal. He was paying $700 a month rent, the first three years of the mortgage the pmts (an example) would be $400 heck thrree hundred less then rent. If he was smart enought to notice that after three years, the pamyents would jump to $1,100 a month or more, or fluctuate up and down, the mortgage brokers (hmmm wonder who bears the most responsibility for this mess, there are underwriters too, have to appove) they would tell them "Don't worry , look at the price of houses, going up $20,000 a year, you can sell your house and Make $", but these were people living pay check to pay check sickness, a blown transmission w/ a $1,500 repair bill, and boom they are delinquent on mortgage.

At the same time these mortgages were being processed into equity backed bonds, and being sold all over the world. One problem. The equity not so solid, alot of shaky and inflated house prices as collateral, and to make things worse, shaky payers to make the pmts.

Sure enough, by 07 these mortgages started going delinquent, and the holders of these securities, had securities that weren't worth what they paid for them. The banks made a lot of money selling them, now no one will buy them. Result, worse financial situation since maybe the depression, because at the same time inflation, price of gas, food, everything going up, people not making enough money to pay these shaky mortgages, which were a great source of $ for banks- now gone, banks have less money, a lot less money and the Federat govt. infusing money in to the banks to keep them afloat. Imagine if several of the major banks closed. You'd have world chaos.

Combined w/many peoples jobs being outsourced to other countries, and companies actually given tax credits for opening plants in other countries, depriving Americans of jobs, consumer spending is down, effecting all aspects of American business.

New home sales, or existing home sales, is the key to our economey, all thing go around it, buying a new TV, furniture, drapes, new carpet, floor tiles. Now combine that with the lowest amount of savings for Americans since the 30's , rising prices, falling home prices, another words homes that people bought two years ago for $150,000 now worth 130,000 and if prices keep dropping they owe more on their homes than the home is worth. Homes were previously our biggest source of savings because real estate always went up,,,,,,,,,,,slowly over time- never have prices skydived so fast in such a short period of time- making peoples net worth less, for owning a home--unless it is paid off.

There is fear this will spill over to other markets like cr. cards, the banks can't sell these mortgage backed securites anymore, and the value of the American dollar continues to fall.

There is more, but you'd have to do some more research on your own, but for the younger generation put down your x-box, forget about Brittany and get real, because your generation will be competing in a whole new world where the American economic system, may not be the strongest, and a lower standard of living may be on the horizon for Americans. Ayyy imagaine $4 a gallon gas-and no raise at work-you get the picture.

Its a valuation problem for banks, investment firms or any group even pension funds that bought into bonds backed by subprime mortgage

With the collapse of the subprime market and the decrease of land value has lead to how to value these bonds, packages now? as such their value have dropped, dropping the over value of the bank, invest firms , plus in this drop no lenders want to lend out monies at this point, causing a credit crunch

on Bear sterns today, they are investment firm, one of the original creators of these subprime notes, as such with the collapse of subprime cause devaluation of those notes equally to devalue of Bear sterns over all

They made loans to people who cannot or will not pay them back. The money they loaned was your deposits such as your cds, checking accounts, savings accounts etc. Usually it works and they make money but right now they are losing so much that when you go to the bank to get your money out they dont have it anymore.