Vastly better then my hamfisted efforts at explanation.
Our confusing economy
Its 40 minutes long and it does a very good job of explaining what is going on for the layman.
Edited to add this neat little graph form 2006 showing the resets in the various mortguage classes.
Notice that the subprime resets will come to an end at the end of this year, although the graph is out of date so there will be some resetting next year. However notice the resets that kick of next year, they are not in the subprime class. Notice especialy the 'Option ARM' class. This will likely become very important. They begin resetting about midway next year. These have brutal resets in them in the region of 7%. Whats more they are 'negative amortizign' loans. This means that you can make a minimum payment that does not reduce the amount you owe and only covers some of the interest and any additional unpaid interest gets added to the outstanding loan. People are holding onto these ticking timebombs and cannot refinance or sell due to the current housing price crash and the 'credit crunch' (or more accurate pricing of loan risks).
Business Week called them nightmare mortguages. (older article)
New article. Phase two of the mortguage crisis in the US.
The bulk of the resetting of ARM (adjustable rate mortgage) morgages in the US has only just happened, the subprimes are probibly about 2/3rds through and the other morgage classes are about to take off where the subprimes left of.
This story here suggests that 3.6% of all mortgages in the US were 90 days late on payment (or more) in December. The courts and mortgage issuers are not able to process foreclosure proceedings fast enough and many simply dont want to forclose. Only 2% of mortgages had started forclosure proceedings. By June the surge in subprime resetting for February and March of this year will be reaching the 90 days later stage. This is the guts of this crisis. This is where it stare at you straight in the face.
The US housing market is totaly fucked.
Asset deflation is utterly unavoidable. The average house price in the US has fallen by more than 15% of off its highs in 2006. But the full scale of the crisis has not yet been revealed. Housing stock simpley piles up in a market that is falling and no one is financing morgages. To fall back into line with long term median price growth I have seen estimates that the average price will have to fall 40% of off its highs and perhaps 50% to account for over correction and recession. Who the hell is going to slave under punative interest rates on a house that is worth 30% less than when they bought it when they have not yet made enough repayments to cover the value that the house has lost, when the alternative is to 'jingle mail' the keys back to the bank and be debt free?
If the system is overburdened with deliquency many more people may choose to stop paying on the basis that no one is taking action, especialy in hard pressed poor comunities.
The US mortgage issuers are facing a monumental problem.
But the real recession is now arriving. Its leading edges are being seen in the transport sector, like the first winds and rains of an approaching hurricane. Airline the perenial sick man of the US economy are starting to fail. 2 small and one medium sized ones ceased operating last week, not just chapter 11 but ceasing to operate (Aloha, AHA and Champion with others others filing chapter 11 in the last 7 days as well). Many others are laying of staff and parking up planes. They are no longer able to sustain the high fuel costs of $90+ oil. Railroad companies are now reported to be parking up frieght cars due to lack of demand and the trucking industry is in near crisis.
New car purchases fell to the lowest level in 15 years.
Rapidly increasing food and fuel prices are taking money out of the manufactured goods market and discretionary spending out of US households pockets. Massively reduced acess to credit also means less money to buy things with. Less things being bought means less being manufactured which is less jobs.
As house prices collapse Americans feel poorer and as retirement looms for the babyboomers the years of excess have to be paid for. There houses are not the financial sure bets they thought they were. There 401k's (pensions) are losing value as the stock market weakens and the state social security pension fund is underfunded to the tune of 10's of trillions of dollars. They have to repay all the loans and second mortgages and start saving for retirment. A saver is not a consumer. The party is over for the boomer generation, probibly the most significant demographic in the US economy.
Its the end of an era and the beging of a long hard deep recession.
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) IIRC had highprofile filings for chapter 9. They cant be liquidated so they have to go into bankruptcy protection. 
