Introduction The U.S. economy is currently experiencing its worst crisis since the Great Depression. The crisis started in the home mortgage market, especially the market for so-called “subprime” mortgages, and is now spreading beyond subprime to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. Total losses of U.S. banks could reach as high as one-third of the total bank capital. The crisis has led to a sharp reduction in bank lending, which in turn is causing a severe recession in the U.S. economy. This article analyzes the underlying causes of the current crisis, estimates how bad the crisis is likely to be, and discusses the government economic policies pursued so far (by both the Fed and Congress) to deal with the crisis.

Housing Bubble Homeownership, (realtors) argue, is a way to achieve the American dream, save on taxes, and earn a solid investment return all at the same time. It's now clear that people who chose renting over buying in the last two years made the right move. In much of the country, recent homebuyers have faced higher monthly costs than renters, and have lost money on their investment in the meantime. Today, many homeowners are in up side down mortgages, meaning the purchasers owe more on their homes than what it is actually worth. In countless cases, it can be said that money has been thrown away, an insult once reserved for renters. Throughout the bubble period there was little if any mention of the fact that housing in many areas was selling for well above replacement cost. Typically, the price of America houses between 1997 and 2006 increased by about 124% which resulted in few homeowners refinancing their homes at lower interest rate or taking out a second mortgage secured by price appreciation (Financial Crisis of 2007 – 2010, Wikipedia). The average US