Basically, banks loan money to people who are in no position to repay the loan. Why do they do this? Because those people are desperate enough to pay an outrageous interest rate in order to get the loan. http://www.foxbusiness.com/personal-finance/financial-planning/real-estate-mortgage/article/subprimes-does-wall-street-care_258641_29.html Through life's circumstances the people can't make their payments on the loan, so the bank takes the house, and doesn't get the money they were supposed to. As you can tell from the article, the effect this has on Wall Street is somewhat of a mystery beyond it 'spooking' investors. It's all just a money game for the people who are 'in the know' to get rich at everyone else's expense. Sorry if I used alot of American idioms in this response.