Anatomy of a meltdown.

The subprime meltdown spilled over into other financial markets over the summer. Investors fled the private-label residential mortgage-backed securities market, shutting it down in early August. Facing margin calls, falling asset values, no buyers for non-agency bonds and no buyers for mortgages

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There's got to be a morning after," goes the theme song from the 1972 disaster flick The Poseidon Adventure. Many mortgage company executives had to share that sentiment as August 2007 finally drew to a close. [??] Like passengers on the Poseidon, a fictional luxury liner hit by a tidal wave triggered by an underwater earthquake, mortgage lenders and Wall Street mortgage financiers now know more than they would like to about being caught up in a disaster outside of their control. [??] The underwater earthquake that first rattled the foundations of the mortgage industry came in the form of sharply higher delinquencies and defaults from a book of poorly underwritten subprime loans from the fourth quarter of 2005 through the first quarter of 2007. [??]

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A liquidity squeeze by warehouse lenders imposed on subprime companies was the first visible shock wave from this earthquake. It toppled many independent subprime lenders earlier this year. Most of the survivors were acquired by major financial companies. By Aug. 31, the crisis prompted a response from President Bush, who unveiled a proposal to use the Federal Housing Administration (FHA) to rescue some stranded subprime borrowers facing higher mortgage payments due to resets.

Shock wave No. 2: Bear Stearns

Following the first shock wave from the subprime meltdown in late winter and early spring, a second--even more powerful--wave hit in June, upending two hedge funds invested in investment-grade tranches of subprime residential mortgage-backed securities (RMBS) managed by the investment arm of Bears Stearns & Co. Inc., New York. The trouble began after Bear Stearns' Enhanced Leveraged Fund, which had $638 million in investor capital and $11.15 billion in gross long positions, lost 23 percent of its value between January and April, with most of that in April.

A chronology of the major events in the summer's market meltdown can be seen in the sidebar, "Timeline."