Some people on here say "you don't know what your talking about, are you an economist, and worse". So this Bud is for you.
Bookings Institute
Know What Went Wrong Before Beginning to Fix Anything
There has been a “domino-like” character to the financial crisis that is now readily apparent to all:
the bubble in home prices, fueled by the ready availability of credit, resulted in an underestimate of the risks of residential real estate;
the peaking of residential home prices in 2006, combined with lax lending standards were followed by a very high rate of delinquencies on subprime mortgages in 2007 and a rising rate of delinquencies on prime mortgages;
losses thereafter on the complex “Collateralized Debt Obligations” (CDOs) that were backed by these mortgages;
increased liabilities by the many financial institutions (banks, investment banks, insurance companies, and hedge funds) that issued “credit default swaps” contracts (CDS) that insured the CDOs;
losses suffered by financial institutions that held CDOs and/or that issued CDS’s;
cutbacks in credit extended by highly leveraged lenders that suffered these losses
http://www.brookings.edu/papers/2008/0922_fixing_finance_baily_litan.aspx