Supply demand curve.
The economy goes in a preset curve based on supply and demand. When there is a high demand, supply is low. When the supply is high, there's a lower demand.
It over simplifies it, but let me put this another way so it's easy to grasp.
Let's say we have a bank here. We'll call it Bank 1.
Bank 1 comes into the housing market on the low end of the curve. Houses are selling left and right, and Bank 1 figures that it can make a bit of money. So, Bank 1 buys up all the property it can and then holds onto the money. By doing this, it causes the market in that area to fluctuate, with the demand for housing to go up, thus pushing the prices up. For the next few years or so (on average the curve takes five to six years to cycle) Bank 1 is sitting "high on the hog" making a ton of money.
In most cases, Bank 1 would stop there, paying attention to the curve and being careful for when the valley or slump would begin. Let's say though that Bank 1 doesn't do this.
So, making money left and right, Bank 1 starts spending it. After all, the market's high, so why shouldn't they enjoy some of their proceeds? Bank 1 spends a great deal, only to get caught at the top of the slump. Great, now they're spending more money than is coming in, and thus a problem begins. Bank 1 asks the Government for help, and President A obliges, giving a loan to Bank 1. For a year or two, even as the market drops, Bank 1 is steady, living off this loan. However, these things are never perfect, so one day, that loan comes due.
Now, with the market dropping steadily (caused by other banks and companies who mismanaged their funds) Bank 1 asks the government for help. Problem. Government says nope, since Bank 1 already owes them. So Bank 1's stock tanks. Many investors, sensing a possible buy-out or closure, start selling their stocks left and right. That doesn't help Bank 1 any, since it pushes their stock value down, and with it the value of the company. Now, no other company wants to buy them since with a worthless stock, the company is worthless.
When it all ends, bank 1 goes belly up, and the consumers are looking around trying to figure out what the heck just happened, and whom should they blame?
All this was based very loosely off what happened with Wachovia, and it's the cause of your economic problems. Had they managed their finances better, and had the larger banks paid more attention, we wouldn't be in this mess.