The original source of our financial crisis is the collapse of subprime mortgages. People are getting kicked out of their homes, which has several effects:
- There are now a lot of houses on the market, driving prices down and reducing demand for more construction. Construction companies suffer, as do all of their labour and material suppliers (lumber companies, contract labour companies, etc)
- Banks have reacted to the defaults by attempting to protect themselves from further risk, meaning that it's harder than ever to get a mortgage. The effect is a similar drop in housing demand, with similar results as above.
- As the true scope of the problem unfolded, people began bailing on bank investments, driving prices down, and eliminating wealth that normal people have stored up in the form of mutual funds and such. This loss of wealth amongst "average people" has driven down consumer demand, and thus basically every other industry out there.
- As investors realized that consumer spending will be down, they withdraw their investments in these companies, resulting in further depression of the stock. This in turn causes more loss of wealth for people holding these investments, and causes a vicious cycle.
Nothing exists in a vacuum.