We have heard it a million times, its far reaching impacts, its origin and our future! So, I thought why not I write something about it, keeping the theory simple enough..and a scope for speculation wide enough 
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Subprime crisis is an adopted name for the ongoing American as well as global financial meltdown. It began as subprime mortgage crisis, caused by defaulted home-loans leading to failure of mortgage companies, investment firms and share markets. In 1997 President Clinton allowed lucrative tax cuts on real estate capital gains, making real estate most favored investment option. Naturally, land prices soared unprecedented (124% in a decade). Around the same time congress deregulated mortgaged industry enabling `subprime lending’ practice with lower interest rate.
During its course, American consumers kept on spending even higher which was revealed as they spent $800 billion more than they earned. Housing bubble grew even bigger as some people used homes as an instrument to refinance their secondary mortgages. The supply-demand equation could no more match, as housing prices steadily declined beginning from summer of 2006, due over-building.
Finally, it had to happen, the bubble was busted! subprime mortgages were $1.3 trillion worth, and $7.5 million outstanding to start with! Mortgages approaching foreclosures were estimated 25% in 2007, and rising! More than 40% of subprime loans with adjustable interest rates were defaulted. Some say that congress is to blame for the crisis because of its deregulation, while some blame financial institution for faulty lending practices. But that is not the issue here!
While housing bubble was gaining size, the mortgaged backed securities (MBS) or in simple words `assets against collaterals’ or the very contract with the bank became a popular investment vehicle. Thus the entire credit risk was ‘transferred’ to the investors. That is how the share markets come into picture! After the bubble bust, Dow plummeted and every time with record figures! Market panic and speculative fears over industry recession led Dow jump over 800 Points in a single day!!! It affected all major industries including automotive, metal and mining, whilst commodities collapsed also partly due hike in food and oil prices.
So far so much, more about its impact on Indian economy…coming soon!
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