Today, the US economy is in serious financial crisis. The crisis began with the bursting of the housing bubble in the US. Sub-prime crisis what US faces today is the effect of yesteryears. The crisis can be attributed to a number of factors such as inability of borrowers to make their mortgage payments, central bank policies, declining housing prices made refinancing difficult etc..A long-term boom in the US housing prices encouraged borrowers to take more mortgages. Also, it let the borrowers into a false belief that it would not be difficult to refinance the mortgages at a more favourable terms later. However, once the housing prices started reducing moderately, refinancing became more difficult. As a result, borrowers became unable to make their mortgage payments due to which banks suffered a high amount of loss. It is the time which has caused due damage to Bear Stearns, the fifth largest investment bank in the US. It was on the verge of bankruptcy as it was sold off to JP Morgan at a throwaway price. Last month Lehman Brothers filed for bankruptcy and Merrill Lynch was sold off to Bank of America. And now the spotlight had turned on AIG, the largest Insurance company in the US, whose financial predicament was being disclosed few days ago. Though the US government has approved the bailout package to rescue the economy out of the possibe danger by creating necessary liquidity for the banks and financial institutions yet the US economy is suffering from illiquidity. This financial crisis had its major implications on the US economy as well as the global markets.