A problem with risky mortgages has led to a global financial crisis. The bigger issue: Experts don't know when it will end.
It started last summer when borrowers with weak credit started defaulting on their mortgages. Last night, it brought down an 85-year-old pillar of Wall Street.
How did we get to this point? How did rising foreclosures among subprime borrowers lead to Bear Stearns being scooped up in a fire-sale for two bucks a share?
The answer starts with investment banks: They sold complex securities backed by debt that was a lot riskier than most realized. The realization that the banks had failed to manage this risk sparked widespread concern among investors and other financial firms.Suddenly, investors found they couldn't put a value on much of what the banks were selling. As a result, the lending markets that keep Wall Street humming seized up because people feared they wouldn't get paid back.
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