Subprime & the collapse of economic giants

the 1st time i've heard about it, i have no idea.
but, it caught my attention.
i become interested in understanding subprime.
subprime

ideas about subprime:
subprime is about loan.
subprime is practised in most constitution where money matters. (banks for example)subprime is the main reason for economic collapse in US of A right now.

lets get to the main idea of subprime.
this definition is from investpedia.
subprime loan is : A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

what causes the flaw in this system?
the "high risk loans" hell (unpaid debts or non performing loan.)

high risk loans means loan was given to individuals whose credit generally is not good enough.

lets have an example.

mr.A bought a house for 100000 dollar. he borrowed from a bank a 100% loan with 2% interest for the next 20 years. after a certain time, another banks offer him to extend the loan for 20 years more with interest rate of 5%. he accepts the offer. but for certain reason, he failed to finish his debt in 40 years, so the bank have taken the house as mortgage. because of the condition of the house, the bank couldn't sell the house. the money cant be liquidized.

because there are too many of situation that is similar to this, the money flow is interupted. company is facing with debts.

this example is not the only reason for the system collapse. other causes that contribute to the financial crisis are including speculation, mortgage fraud and inaccurate credit rating.

watch out for econamy crisis during year 2009.
be prepared.