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A financial crisis does not simply appear out of no where. It takes years, and years to build up to what finally becomes a near-irreparable crisis. Our nation did not simply teeter on the brink of disaster due to events of the past four or even eight years. The current situation is a culmination of years and years of financial negligence. All the blame and shame that is occurring on the campaign front is not relevant to the issue at hand. This problem began when the sub-prime mortgage industry increased their offerings of loans that required very little documentation. These loans were given to those who would not normally qualify for high-end homes. Utilizing bank statements and simple documentation such as letters from employers, these "no doc" loans were easy to qualify for, allowing many people to get in over their heads in house payments. But it doesn't stop here.

Many of the rates were fixed for a period of time, allowing the borrower to have low payments for the first one to three years of the loan. The lenders would promise the borrowers that they could obtain re-financing when their rate increased, as the prepayment penalties on these loans were usually about two years in duration. Once the prepayment penalties lifted, the borrowers would simply roll their loan into a new one, at an equally obscene rate, with the same terms as the first. And so on, and so on. The borrowers would then roll their closing costs into the new loan and voila, a palatable payment continued for another two to three years.

This might have gone on forever and ever, but the government cracked down on the sub prime market, making it impossible for these people to continue rolling over their loans. When their rates increased, they had no way of paying the new payments, causing them to either sell their house, or be foreclosed upon. Most tried to sell, for obvious reasons, but this caused an entirely new problem, as the inventory in the housing market increased by vast proportions. Once there was a surplus inventory of houses on the market, this caused values to drop below amounts owed on houses. Once this occurred, foreclosures became more prevalent.

As the foreclosures continued to increase, the mortgage industry began to suffer. Many of those who held these mortgages were banks and other financial firms. As the banks ended up with a surplus supply of houses, their lending guidelines began to tighten, as the funding which was once plentiful began to dry up. This caused problems on the market with mortgage backed securities and the secondary mortgage market. As banks began to teeter on the verge of bankruptcy, investors in the stock market began to get nervous and sell their shares, causing widespread panic in the financial sector.

The blame for this crisis cannot possibly fall on any one individual or entity. It is a result of so many factors coming together to create a domino effect on each sector of the finance industry. For those who depend upon funding from their investments to live, this can be a difficult, if not terrifying time. For those who have time to sit with their investments, this is the worst time to sell. Instead, this is a time to buy good, quality stocks, for they are at a deep, deep discount.

Learn more about this author, Monica Tunnell.
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