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This month could be considered the one-year anniversary of the onset of the subprime meltdown. A few pivotal events occurred in April of 2007, before the conflagration that flared up in August. Now, one year on, write-downs on assets exceed $235 billion.
This is the sum of the write-downs for the 20 financial institutions that have taken the largest hits on their balance sheets, as listed in the first chart. By write-downs, we mean admissions by the firms themselves that assets they owned in the form of mortgage-backed securities had fallen in value. Why? The original mortgages had been written to people who for whatever reason would stop making their payments, thereby making the downstream securities worth less—sometimes much less. 
The first chart also shows the extent to which subprime pain (largely originating in the U.S.) has registered around the world. True, of the five firms with the largest write-downs, four were American (the exception, spectacularly, was the Union Bank of Switzerland). But 12 of the top 20 were foreign, and they accounted for $107 billion in write-downs (vs. $128 billion for the 8 U.S. firms). The implication is that financial markets, in all their exotic nuances and modulations, have become more globalized than ever. What do the write-downs mean for the profitability (and even the viability) of the financial institutions in question? The answer is less obvious than one might think. For simplicity, the second chart lists only U.S. firms, but the same logic extends to the other dozen as well. It shows that firms can take big hits on their balance sheets while still managing to register positive earnings. Examples are Wachovia, JPMorgan Chase, Morgan Stanley, and Bank of America. The reason: asset write-downs are a “charge” against earnings. If earnings are strong enough from operations, earnings (profits) can dominate the loss from write-downs, and the net effect can be positive. 
On the other hand, for (the former) Bear Stearns, Washington Mutual, Merrill Lynch, and Citigroup, write-downs have overpowered whatever positive earnings were generated by ongoing operations over the past year or so. Have all the write-downs now been acknowledged? Stay tuned. By some reckoning, the total will approach $400 billion, still a far cry from the $235 billion reported so far by the 20 firms that have owned up to the most pain. As events unfold, it should prove interesting to see how big future write-downs will be in financial institutions outside the U.S., relative to American firms.
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However, the quicker the writedowns occur, the quicker the system will heal. The Japanese banks refused to acknowledge their losses, and the system langusihed for a decade or so.
Why did individuals for "whatever reason" fail to make a payment?
Deregulation beginning in the Regan era, continuing with Clinton? Are you suggesting this was not expected?