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1. Where is the $700 billion going? Is the US gubmint buying sub-prime mortgages to relieve financial institutions of their burden, in which case, we the taxpayer, will have actual brick and mortar ie collateral which can then be sold?

The $700 billion is going to those banking, insurance, and investment companies who will sell derivitives upon derivitives upon mortgage backed securities, which are basically not worth the paper they're written on. The U.S. government won't have any ownership on foreclosed real estate, only derived ownership of the amounts recovered from those assets when what's left of the mortgage is either paid or written off.

2. I am aware that Congress, by way of the CRA, pressured/forced lending institutions to lower underwriting standards and provide mortgages to minority borrowers that ordinarily wouldn't qualify. Were these banks also forced to provide no doc loans to illegal immigrants or was there a feeding frenzy going on?

Feeding frenzy, most likely. Lenders who make no doc loans knew they could sell them off in the aformentioned worthless derivitives and collect both the amount loaned along with requisite fees.

3. Who in these lending institutions were approving these loans that were overvalued and they knew couldn't be paid back? Loan officers get paid when the loan closes, they don't care if it defaults next week. I suspect that there was a fair amount of fraud involved in the no doc loans and also appraisals but someone up the food chain, in a corner office with a view approved the this crap.

Nobody was looking in the right places to catch them, so the lenders approvee the loans, they were lending someone else's money. What happened is somebody started looking at the books close enought to see what a mess it was. We didn't get into this mess overnight. It took years, even decades.

4. Was the intent just to close these loans, get the fees, bundle the sub-prime garbage in bundled mortgage securities and sell to investment banks and such and to Freddie and Fannie thus passing the stinking fish down the line?

Bingo.

5. If the percentage of residential mortgages in default or close to it is anywhere from 2%-6% why the supposed dramatic impact on the economy?

It's not so much the foreclosures as it is all the worthless paper on the books of the financial institutions, which is playing h e double-toothpicks on their stock, and their credit ratings, and their ability to raise more money from investors. Since they can't get any more money, they don't have money to lend or invest, which is pretty much the end of the line for lenders, insurance companies, investment firms, etc.

6. Lastly, should I invest in Avon stock, speculating a run on their popular "Soap on a Rope" or should I not expect to see Raines, Gorelick, Johnson and others in prison orange?

They aren't going to jail, I don't think. Besides keep your money out of the market. NOTE: These answers are provided by someone who knows absolutely nothing about finance, investing, banking, etc. But I can read the writing on the wall.

..keep your money out of the market.. No offense, but I strongly disagree, the market is where you want your money right now. Just diversify and think of all the bargain companies that are unrelated to the financial firms in trouble. MSFT has been a steal for a long time, with over $40 Billion cash on hand and no debt. There are a lot of companies like Microsoft out there who have been held down because of other stocks bringing the market down. There is a lot of money moving out of the big financial that need to go somewhere. People will be looking for stocks with strong fundamentals, like Microsoft (for example) to move money to.

Warren Buffet had a good philosophy- when people panic- Buy. When people are greedy- sell. It seems to be better than the old 'buy low, sell high' mantra..