The high risk taking habits of US has resulted in Global economic meltdown. The cascading effect started in the end of 20th century whose repercussions are rooted in major economies this time. The US sub prime (where the borrower has to make little or no down payment) market collapsed and mortgage delinquencies soared when Housing prices started falling and refinancing (Repayment of a previous liability by taking another loan to off set) became difficult. Initially the easy loans and the rising trend in housing sector encouraged the borrowers to take loan. But when prices fell down coupled with high interest rates and refinancing became almost impossible for borrowers, especially those under sub-prime, the banks and financial institutions started making huge losses which accounted to around $435.00 on July, 17, 2008. The aftermaths were very apparent on stock market as the major companies suffered a loss of around $8 trillion because their holdings declined from $20 trillion to $12 trillion.
But there are many causes which can be attributed to collapse stared in the closing of 20th century which can be high risk taking, speculations regarding rise in housing price during the boom period, high corporate debts, poor judgment of borrowers, pressure from government to help lower income groups etc. The ironic fact is that nearly 40% of the houses purchased in US during 2005-06 were for investment purpose and the major buyers were corporate sector. But the speculators failed to recognize the stagnancy which sucked the market and resulted in falling prices in housing sector. The credit crunch stepped up in US which resulted in busting of 158 year old investment banking company Lehman bros. The giants like Wall Street are with begging bowl at the doors of Federal Reserve.