The financial meltdown of the last week has hammered home the predictions of many who said there was more fallout to come from the US credit crunch.

But for those not so closely embroiled in the goings-on of Wall St and the financial markets it's hard to know how we have got to a point where some of the world's most well-known banks and insurance companies are going under.

Who would have believed two years ago that Britain's Halifax and Bank of Scotland (HBOS) group - the UK's biggest mortgage lender, would come to a point where it would need to be bailed out through an emergency cash injection from Lloyds TSB?

Or that American International Group (AIG), a global insurance firm with US$1 trillion ($1.48 trillion) in assets, would have to be stopped from going bankrupt with an emergency loan from the US Federal Reserve.

So how did we get to this?

BOOTING UP

Many analysts now link the origins of the sub-prime crisis and the resulting credit crunch to the tech sector boom and bust and the 2000-03 recession.

The emergence of the internet led to the launch of a huge number of internet-based companies in the mid-to-late 1990s.

Then, as many of the businesses went bust, the bubble burst in 2001. About a year earlier the US began heading into recession following a boom time in the 1990s fuelled by low inflation and low unemployment.

There were large lay-offs as companies sought to cut costs by outsourcing jobs. To try to stimulate growth in the economy the US Federal Reserve began to cut interest rates in May 2000, cutting them 11 times between then and December 2001 to drop the rate from 6.5 per cent to 1.75 per cent.

This made the cost of money very cheap for banks and in turn for borrowers, setting off a worldwide housing boom. House prices rose phenomenally and so did the number of mortgages given to those with poorer credit histories.

These high-risk mortgages or sub-prime mortgages were given to people with low incomes, poor credit histories - many of whom would not otherwise have been able to borrow from a main trading bank.

While not a huge part of the entire mortgage industry, sub-prime mortgages proliferated in the early part of the decade. According to Moody's Investor Services about 21 per cent of all mortgage originations from 2004 through to 2006 were sub-prime, up from 9 per cent from 1996 through 2004.

Sub-prime mortgages totalled US$600 billion in 2006, accounting for about one-fifth of the US home loan market.

In late 2005 the housing bubble burst as too many houses flooded the market and too few buyers were able to afford to buy. The downturn in the housing sector then continued to worsen over 2006-07 and has yet to have reached the bottom. The plunge in existing home sales is said to have been the steepest since 1989.