Chan's Personal Blog

For anyone who has been following the U.S. stock market, you would have noticed that it has been extremely volatile as of late. The root of the problem has been subprime loans which are mortgage loans that banks gave to people who really shouldn't have qualified for a mortgage (hence the term subprime). Essentially, people were taking out mortgages with no down payment, at introductory low interest rates. However, interest rates have increased, and people can't pay for their houses anymore. On top of that, people who can't afford their houses are dumping them onto the market which lowers house values. This is a self-perpetuating problem though.

1. You can't afford to pay your mortgage, so you decide to sell your house.
2. When you sell your house, you can't sell it enough to cover the mortgage because house prices have dropped.
3. Now you have no house, but you have to continue paying off that mortgage.

Mr. Jim Cramer made some colourful remarks about the problem on CNBC and The Colbert Report.


Enjoy.