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jeromechickenbone:
International markets jumped in because these investments were insanely profitable for the last several years.  A big driver in the mortgage depression (and banking in general) is that they were heavily structured on incentive based lending.  For every loan an officer put on the books, they were getting cash.  Take Mozillo who is Countrywide's CEO.  Countrywide was the biggest mortgage company in the US.  His pay was HEAVILY determined by how many in both # and $ dollar amount of loans they put on their books.  He made several hundred million dollars over the last 5 years.  If those loans blew up, he doesn't give a shit because he's already made a large fortune.  He couldn't give a shit less if he loses his job.

When you set up a system like that, it's destined to fail.  And of course Countrywide imploded and had to be bought out.  And Mozillo is facing accusations from shareholders for both falsifying profits and knowing well ahead of time that the stock value of the company was gonna crash.  He liquidated his shares in countrywide about a year ago and made hundreds of millions of dollars.  His explanation was that he was "diversifying his portfolio", lol.  He's part Enron and part Martha Stewart basically.

But anyway, a lot of banks / investors internationally saw those insane profits and they bought billions of dollars worth of mortgage backed securities.  Now there is some political pressure because these investments have basically gone belly up.  The purchasing investors want the loan originators to buy these securities back because they stand to (and already are) losing hundreds of millions of dollars.  Investors from all over the world are affected by the housing market in the US. 

But housing is just a symptom of the overall problem which is like you said, the devaluation of the dollar.  The Federal Reserve is truly fucked here because they are trying to slash interest rates to spur people to go to banks and take out loans and help they economy.  However, the Fed is simulataneously slamming the door on a lot of banks because they claim that they were putting too risky of loans on their books over the last 5 years and are heavily downgrading those loans.  When loans are downgraded, banks must take money directly out of profits and into a reserve fund.  Banks can only lend X% of their capital base, and that capital base shrinks every time cash is re-allocated from profits to these reserves.  So banks lending practices are going to be much more strict for the foreseeable future. 

So regardless if the Fed cuts rates to spur the economy, banks are going to be MUCH more skeptical about lending out money which is very bad for the economy.  Then you've got the other effect of the Fed slashing rates - inflation.  Because we have no commodity backed currency (even though the Constitution explicity states that our currency must only be silver or gold), the Fed can print as much money as they deem necessary, which has a net affect of inflation.  For every dollar printed, the dollar becomes less valuable.

virtuoso:

Right and of course the slashing of interest rates is only further devaluing the dollar and is undermining the so called hot money i.e. there is some 200 billion pounds worth of hot money investors, who invest their money elsewhere when interest rates are cut. However by slashing interest rates like they do, and like you said, they only further more inflation. The reality is to that the stock market is an illusion, these interest rate moves only temporarily halt the slide and give time for them to reposition their investments. Once they have completely bailed out, the whole thing will collapse like a game of jenga after you have removed one block too many. However it's not just the dollar which is being decimated, this whole false illusion, where everything has been entirely credit driven, is starting to be felt here to, Sterling has fallen by more than 10% in the last year and that is massive.

However props for clarifying +1

white Boy:
wow, what a nice song, i never heard it before, but its beautiful, i dont like the video though, i never like that kind of stuff

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