Where did this crunch come from ?

This credit crisis started when US mortgage companies made hundreds of billions of dollars of loans to individuals that had less than perfect credit histories, this is often called subprime lending.

These debts are often then bundled together into a portfolio and then sold to on to other financial institutions in different countries often, who then in turn flogged the debts to pension funds, sometimes, even for more than the book value!

Nobody really knows who is holding some of these duff loan portfolios and until we do many banks are reluctant to lend to each other, and investors then become wary about the general state of institutions in the financial sector.