Why are banks going bankrupt?

The short answer -- greed. The long answer, It's the nature of capitalism as you attempt to maximize profit you need to increase risk. The banks didn't want to make long term loans at the record low interest rates of the past few years so steered people to mortgages that would force them to refinance. When the loan adjusted it's rate or the balloon payment was due they would refinance the loan again. If the rate was still too low they'd refinance it with similar terms to the original note. The cycle could maintain itself indefinitely as long as home values stayed the same or increase. What happened? The values of homes went down which meant when the rates adjusted or the balloon payments came due the banks were no longer willing to refinance the loan. Why would they? You bought a home for $200,000, financed $190,000, paid off $2,000 but now the home is only worth 160,000 and you owe 188,000. The home owner now owes more on the home then it's worth, that alone isn't that big a deal. If they could still afford the payments they'd still have a roof over their head, the house will likely appreciate over time back to it's former value but they don't have time. When the rate adjusts their payment can increase up to 3 times what it initially was -- they can't afford it anymore. So they can't afford the payments on a house worth less then they owe on it they have no choice but to let the bank foreclose. When the bank forecloses they now have to try to sell the house, which isn't all that easy in the current market and if they do manage to sell it they take a lose on the difference between what was owed and what they sold the house for. Worse still is if they don't sell it, because until they do the entire amount they were owed is a loss. Some cities are fining the banks for vacent properties decreasing real estate values. Others are suing the banks for lost tax revenue. These increase the banks loses.

Now with all the empty homes at bargain prices you'd think people would start buying them up. The problem there is credit has tightened up. Down payments are larger and banks are demanding higher credit scores of the borrowers. End result is the people who are the best prospective customers for those houses are the ones least likely to be able to finance one.

Because some bright spark in the US thought that it would be good business to give Mortgages to people that couldn't afford them, now all of the lenders have made such great losses that the knock on effect is being felt all around the world.

Mainly because they were giving out too many high risk loans. They were giving loans to people who had too small of an income to pay their mortgages.

Eventually the people default on their loan, meaning they got behind on payments and can't pay. The bank takes the house from the people and sells it at below market value just to get their principal money back.

This happened so much that banks lost money to the point that they owe more money than they have.

Well it all begins with the U.S. economy. It's in really bad shape at the moment, what with the war, and the increasing federal debt.

The U.S. is also a large part of the global economy. So when part of that is doing badly, the others have less to depend upon, and they suffer as well.

Most of these banks, and insurance agencies are international, and they suffer because their clients are in some federal trouble, and their fees and taxes are being increased due to the government problems.

So basically its a big vicious circle

when you give people loans for a home a new car and credit cards, and they only make minimum wage, there lies the reason for their demise, I know people this happened to.

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