It's Raining, It's Pouring, The Old Man Is Snoring

How bad will it all get? Remember America, it started with George and his Republican friends in Congress that gave him everything he wanted...

The road to Bear Stearns' collapse — and the Federal Reserve's response to it — began with the housing bubble. As home prices soared to economically unsustainable levels, fewer people could afford to buy. In response, banks and other lenders created new types of mortgages, which made loans affordable to people who normally wouldn't qualify for a conventional 30-year mortgage.

The beauty of these subprime mortgages, at least from a mortgage broker's point of view, was this: Banks and brokers collected fees for closing the deals but faced no risk once they sold the loans to Wall Street.

Wall Street was eager to buy subprime loans, mix them with other types of debt, package them into complex securities and sell them to other investors.

As long as housing prices continued to soar, everything seemed fine. Borrowers in shaky loans could refinance their loans or sell their homes for big gains. Investors in the new securities that Wall Street created could enjoy rich interest payments.

Once the housing market started to fall, though, borrowers started to default on mortgages. As defaults piled up, the complex securities Wall Street had created from those mortgages began to crumble. More and more lenders grew wary of making loans, especially if the collateral was mortgage-backed securities.

Bear Stearns was one of the biggest underwriters of complex investments linked to mortgages. Two of its hedge funds, heavily invested in subprime mortgages, folded in July. Bear's investors became increasingly reluctant to do business with the company. Despite the company's assurances that it had plenty of cash on hand to continue operations, it collapsed Friday.

The story of Bear Stearns isn't just a saga of a spectacular Wall Street failure. The company's failure signals far deeper problems with the nation's economy and raises questions about the consequences of Bear Stearns' problems for ordinary Americans:

[From Red flags in Bear Stearns' collapse - USATODAY.com]