Bye Bye Banks and Wall Street

[Morrigoon]

It's... complicated.

Let's just say that the market operates in cycles, and when the pendulum is allowed to swing too far one way, natural forces (eg: market cycles) force it to swing back the other way.

The less simple explanation is that in recent years, the market invented a way to turn mortgage investments into stock investments by bundling large numbers of supposedly similar mortgages together so they could sell shares in them just like you'd sell shares in a company.

Since real estate is considered a safe, secure investment, managers of large portfolios (such as investment funds sold by investment houses or those owned by insurance companies (that's what they do with the money)) invested heavily in these mortgage-backed securities. So with the record number of foreclosures we're seeing, these securities are losing value like crazy, which means the funds that invested in them are losing money like crazy and coming crashing down. Which means that the companies selling or holding these large portfolios are suffering a serious liquidity problem (no cash) so they can't pay their debts (investors selling their shares in the funds, or payouts to insurance policy holders), so the companies are coming crashing down.