As foreclosures began to spread Cheerless’s Economy estimates nearly 2.5 million homes were disorie in 2007 and 2008 and another 3.5 million could be lost in 2009 and 2010 the hurt hit Wall Street. This is where leverage reenters the picture. Recollect all that borrowing I mentioned earlier? Well, a lot of it was used to invest in all sorts of mortgage-allied securities. When those investments began to fall apart because so divers of the underlying mortgages that were the basis of those bets were now in foreclosure, investors faced the frightful-looking downside of leverage: They had borrowed a lot of money and now had no money to pay it back. At 30:1 leverage, a Stockade drive crazy Street player could make bets with a value of $300 million parallel with if it had just $10 million of its own money backing that bet. If the bet didn’t pay off, the bank or hedge stock had no way to make good on the $300 million. And the supposed "insurance" from CDS was virtuous an empty promise. No one had the money to make good on those deals. To evaluate: We had lenders making loans that borrowers couldn’t afford, borrowers pleased to get a mortgage they couldn’t afford, and Wall Street, egging on lenders and borrowers, potent us that it was all okay because they insisted they had a brilliant way to preserve investors (and their own trading operations) against the risk in making well leveraged bets, because in the unlikely event borrowers actually cut into trouble, the credit default swaps would save the day. That, of path, is a very basic explanation, and there are many, many other elements that came into have fun. But I want to cut to the real issue here: We are in trouble today because all was happy to lie, or happy to believe lies that any sane person could see honourable through.

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