Strawberry Shortcake Explains The Subprime Mortgage Crisis.

Hi! I'm Strawberry Shortcake. Do you like to blow bubbles? I know I do. But do you know what a housing bubble is? It's when home prices rise far beyond their intrinsic value. Some think subprime loans helped over-inflate the market! It may not sound as much fun as blowing bubbles, unless you're an attorney or you invest in gold!

It used to be that lenders offered mortgages to people with good credit and a down payment. But during the housing bubble, some lenders offered mortgages to those with bad credit with no down payment! And some borrowed more than the house's value! Those are subprime loans and they're berry bad.

Have you ever heard of an adjustable rate mortgage or ARM? It's not like your arm, silly! It's when an interest rate on a loan starts low but rises after a year. Some subprime loans were ARM loans to people with shaky credit. They hoped to refinance before the higher rates kicked in.

But then the housing bubble burst - just like when you blow bubbles! And instead of blowing more bubbles, people couldn't refinance and home values dropped!

Pretty soon, they started defaulting on their mortgages which is berry bad for them. But it's berry bad for you, too!

That's because many, many, many investors and financial institutions bought mortgage-backed securities. And when the subprime loans went into default, investors and financial institutions weren't paid. And that made them berry, berry angry.

Because they weren't paid, investors and financial institutions saw lower returns. And because they saw lower returns, they spent less. And because they spent less, other parts of the economy spiraled into chaos!

It's all berry, berry sad!