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Featuring an analogy posted by Prof Ong Wen Hao Marcus (P.S. aspiring to be :P) of how the sub-prime came about... For someone who knows nuts about economics, i thought this was pretty easy to understand, so this is how the story went...

1. Commercial banks made it possible for anyone to borrow money (even the sub-primers - refer to chart above* self-constructed! :)

2. Bank: YT owes me $100. Oh shit! What if she can't return the 100bucks to me. So in order to spread the bad debt, I offered John (Investment banks - Lehman Brothers, Bear Stearns) to buy from me pieces of paper at $50 and in return, YT will owe him $100 (So he earns $50).
P.S. Commercial banks sell such instruments: MBS (Mortgage Back Securities)

3. John wants to spread the MDS too, in the case that YT cannot pay up! So they sold it to other people internationally (DBS, Bank of China, etc).

4. At the same time, John bought insurance (mostly from AIG) to guard against YT not paying up (Credit Default Swop). A gamble which AIG took that caused them to end up in bankruptcy.

Easy to understand isn't it? HEHE :D

Anyway, bird-day updates coming right up!