Today's Characters

The Bubble

Sunday: Boom

Fo rces converge to fuel the biggest American housing boom since the 1950s: plunging interest rates, exotic new Wall Street securities that flood the mortgage industry with cash, and easier loan packages for immigrants and others with less-than-stellar credit.

Today: Bust

Banks and other mortgage lenders notice weakness in the housing market. New houses sit unsold and foreclosures rise as people who bought homes with adjustable-rate mortgages see sharp spikes in their monthly payments. Central bankers and other watchdogs are caught by surprise.

Tuesday: Aftermath

When subprime lenders implode, the contagion spreads quickly to Wall Street, which had packaged risky mortgage loans and sold the securities around the world. Investors panic that the housing collapse will reverberate through the rest of the economy.

Toda y's Characters

David E. Zimmer, from left, an executive with subprime lender People's Choice

Kevin Connelly, a mortgage broker in Vienna with Pinnacle Financial

Ben S. Bernanke, chairman of the Federal Reserve

Robert Steel, undersecretary of the Treasury for domestic finance

Edward Gramlich, a former Fed governor who saw early signs of trouble

A Glossary of the Bubble

Mortgage-backed security: A bond that pays investors interest derived from the cash flow of a pool of hundreds or thousands of monthly mortgage payments. The securities, also known as collateralized mortgage obligations (CMOs), often slice the pool into sections -- called "tranches" -- that each carry different maturity dates and interest rates and are sold separately to investors.

Foreclosure: A process by which a mortgage lender seizes ownership of a home, usually when the owner falls seriously behind on payments.

Credit rater: A company that Wall Street and investors rely upon to analyze bonds, mortgage-backed securities and other debt issued by companies, financial institutions and even governments. The raters -- of which the Big Three are Standard & Poor's, Moody's and Fitch -- usually give letter grades to indicate the likelihood that the debtors will default.

Federal Reserve: The U.S. central bank, known as the Fed. Its control over a special interest rate for bank-to-bank lending influences the interest rates paid by consumers and businesses.