As defaults kept rising, these institutions could not service their loans that they had taken from banks. So they turned to other financial firms to help them out, but after a while these firms too stopped extending credit realizing that the collateral backing this credit would soon lose value in the falling real estate market.
Now burdened with tons of debt and no money to pay it back, the back of these financial entities broke, leading to the current meltdown.
Image: An advertisement seen through the window of a bank near Wall Street in New York City. | Photograph: Chris Hondros/Getty Images
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