Quote from gnome:
The populace of we Americans are far down the list of "reasons" for this mess.
Sure, a percentage of Americans who could not get a loan for a home before were [falsely] given eligibility when they shouldn't have been... but those people always WANTED a home.. "the American dream" sort of thing.
Then there were those who understood finances and bought multiple houses for investments and flipping... but they never should have been allowed to do so with little or no money down.
Those really responsible were (1) GREEDY American politicians for making such loans not only possible, but MANDATORY in many cases, (2) GREEDY banks for irresponsible underwriting of mortgage banks (because they knew they could offload the mortgage to Freddie and Fannie... and they knew THAT because GREEDY politicians arranged for Freddie and Fannie to by EVERYTHING in the way of home mortgages, quality or not), (3) GREEDY Investment Banks for devising the Credit Default Swaps where no one was required to reserve to honor obligations if called upon... BUT they never would have been able to develop CDSs without #1 and #2 above, and (4) Alan GreenScam and the Fed for facilitating much of it with irresponsible money-pump and irresponsibly holding rates very low for way too long... thus creating a "carry trade" where there was even no currency risk. (This facilitated the perception of "the perfect investment"... higher than other current yields and INSURED against default... or so they thought... and so the GREEDY financial world LEVERED THE BEJESUS out of the situation.)
Without all of the above, the "average American" wouldn't have messed up anything and we'd have none of these problems facing the financial world today.
The amount of damage caused by unsophisticated Americans who were falsely given sub-prime mortgages and then defaulted on them is perhaps only 1/100th of the total damage.
So.... those responsible are Americans... a relative handful of us... and they are slimy enough to not only NEVER admit it and claim responsibility, but who also LIE AND DECEIVE ROUTINELY in their normal course of doing business.
Although I do agree with most of what is written above as being 1/2 of the catalyst, you are minimzing the role that the greedy Public played.
It is quite simply a fact that without the excessive demand, the supply of negative amortizing loans, high-margin sub-prime ARMs and excessive use of Stated would never have happened.
I have been a loan officer for a long time. Between 2004 to 2007 I have personally experienced:
People literally crying at the new home builder's lot because they missed out on the house they wanted.
People calling to BEG to get approved for their excessive housing purchase.
People willing to jump through any possible hoop, including outright fraud (they were told "no" but the point is they tried) to get approved.
People willing to sign a loan note at 8% or even much higher (they were ALL going to clean up their credit this time).
People buying 3, 4 or 5 so-called "investment" homes that they never even researched to see if the rent cash flow was viable.
People willing to sign negative amortization loan notes to get away with only paying 1/2 interest, so they could buy more house.
etc. etc.
The point is that the banks may have hung themselves on the leverage, but the public demand was the rope.
------------------------------------
If you think back to when the housing run started, the Tech Bubble had just burst so stocks were out of favor, commodities were cheap due to what should have been a real recession if not hyper-stimulated by G-span - so RE was the only asset class perceived as "safe".
It is the same reason that oil and other commodities had a bubble run. Did anyone seriously think oil was worth $140/barrel? When stocks and real estate were both wobbly, then commodites were next.
It is a sector rotation cycle that is getting more and more bubblicious as time goes on.