It all started off with the disclosures of the defaults of the sub-prime loans doled out to not at all trustworthy clients. These people were encouraged by the US Govt. to buy houses & easy finance was made available to them & the loans were so designed so that they should get into the system. This led to a boom in the housing market as the property rates went through the roof.
Actually this all started off in 1970s when the Bretton Woods System was done away with by USA,& the USD(Int'l Currency) was debased. This led to creation of imbalances in the Balance of Payments account between the trading countries. The US also used this as an opportunity to utilise & take maximum advantage of the same by financing its fiscal deficit through printing more amount of dollars which in due course of time increased the Inflation levels in various countries across the globe. This problem was further accentuated by the increasing influence of globalization which essentially is a Zero Sum Game but was so modified by US in such a way that it looked like a WIN WIN situation.
All these manipulations continued over a period of over 2-3 decades till mid 1990s when Internet era came before busting in 2000-01 & followed by the Housing Boom which is sending tremors across the globe & are very severe. As per an estimate the overall size due to the MBS & CDSs size is around 62trillion USD & the housing loan market which grew from 4.8trillion USD in 2001 to 10.3 trillion USD. The US Govt. actually promoted this by pushing the purchase of houses so as to bail out the economy which was reeling under the setbacks after the dot-com bust.
But, these short term measures are creating havoc in present times & the global leaders are working their way out of this carnage & let's hope something sustainable comes out..
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