If you still don't get it, then give me a call and I will explain..
- Government creation of GSE, Fannie Mae and Freddie Mac to buy Mortgage Loans
- Desire to increase home ownership: Bush pushed GSEs and Fed to lower rates and lending standards to allow more people the ability to own homes
- Sarbanes Oxley Act comes along after Enron scandal, requiring Mark to Market accounting for all public companies, including banks
- Interest rates start to increase and people with ARM start foreclosing
- Wall Street stops buying Mortgage Back Securities
- Banks requiring to "mark to market" there unrealized loan losses do so, causing rating agencies to downgrade there credit
- Banks sell and buy Credit Default Swaps to protect against loan losses
- Investment Bankers that sell CDS, go out of business when they are required to pay out and cant.
- Banks go into bankruptcy after there capital requirements are not meet and the CDS protection they purchase goes into default.