I have a question about the recent subprime crisis.
The underlying issue I believe is that people got variable rate mortgages a few years ago
at a very low teaser rate which reset last summer to a rate which made people's payment unafforadable for them leading to massive foreclosures etc.

The FED has since then reduces rates quite a lot and in fact, a rate cut is stipulated for today as well brininging it to down perhaps 2.5%. So this year when those people whose rates are supposed to be reset finally get the rate reset, they won't be in any problems right since the current Prime rate would be already low?

In which case, isn't the subprime crisis solved this way?

No its more complex than that. The problem was not caused solely by rising interest rates making loan payments less affordable. A lot of the problem had to do with loans being made that were riskier than they should have been. Lenders would lend 100% of the appraised value in anticipation of a continued housing boom. That boom ended and people were left with loan balances that produced negative equity. People could afford their homes, nor could they sell them. Foreclosures increased leaving lenders holding the bag. Without income lenders were forced to shut down or take huge losses. Investors, investing in mortgage backed securities also lost big (see Bear Sterns). This had a domino effect on lending in general. People lost jobs causing an unemployment problem. Without income to tax, goverments now have to deal with deficits.

So no, just lowering the interest rate doesn't solve the crisis. Though it makes me happier. Its made my credit payments (my HELOC monthly interest has gone down over $100) more manageable. I can either reduce payments while paying the same principal or pay prinicpal down more.

To an extent, you are correct. However, I think there are still a couple of fundamental issues that a rate cut all by itself won't solve:

For people who have purchased homes with little or no down payment, the recent decline in real estate prices has made their loans "upside down" meaning that even if they can to afford the monthly mortgage payment, it may make economic sense for them to just walk away from the home and turn it over to the bank. Why continue to pay a loan on a $300K mortgage if the house is worth only $275K? Personally I think such a decision is very short-sided -- in theory this buyer could walk away from house #1 and immediately buy house #2 at $275K, but in reality anyone who does this takes a hit on their credit rating and so probably can't afford the $275K house, so they end up leaving the home owner market. The result is a continuing downward pressure on housing prices.

The other issue is the boneheaded investment decisions that have been made by many of the financial institutions, where they totally underestimated the risk of trading mortgages and the derivatives from them - they did not properly anticipate the effects of lower real estate values on their holdings. So now Bear Stearns gets its due, and who knows whether Lehman Brothers or Merrill Lynch may be next.

Read this link to gain full understanding of what has occurred and why. Chicago Mortgage Market - Economics, Housing and Important Data (http://www.chicagomortgagefinance.com/urgentnews)