By 2009, the US economy was suffering greatly. Unemployment was on the rise, and the country was officially in recession. Understanding what happened is difficult, but one of the main problems involved housing loans. Homes are expensive, and when people want to buy one, they generally take out a mortgage, or home loan, from a bank. The bank lends the home buyers money to purchase the house, and the buyer then pays back the amount over a long period of time. The bank charges interest, which means that it makes money on the loan transaction.

In the recent past, however, bank lenders began offering mortgages to people who weren’t able to make their payments. The banks that held these subprime mortgages then sold them to investment banks. The investment banks then traded them with other banks and funds. The investment banks didn’t actually have the money to cover the cost of the loans; they had only promise that a home buyer would repay the loan someday. Because so many people could not repay their loans, the banks found themselves in big trouble.

As a result of the financial crisis, many people lost their homes, people slowed their spending, houses became less valuable, banks stopped lending money, business suffered and laid off employees, and investment banks fell apart. Because so many individuals, banks, and funds were involved, the entire economy suffered. If you find this information difficult to understand, you are not alone. Even smarted economists and business people have a hard time making sense of it all.

In early February, President Obama signed a massive economic recovery stimulus package, including more than $780 billion to help kick-start the economy.