The sub prime mortgage collapse and subsequent recession were just the final act in the tragedy known as Government trying to help. It began with Jimmy Carter's pipe dream called the Community Reinvestment Act (CRA) but because it was ill conceived and not very well implemented it never caused too much trouble. The ostensible reason for the CRA was to help people who couldn't otherwise afford/qualify for a home be able to purchase one.
It just kind of lay there during the Reagan and Bush 1 years, then the Clinton Administration with all their meddlesome tendencies decided it was time to "strengthen it and make it work". You can read that as Government intervention in the free market, which virtually never works out. Clinton's Attorney General Janet Reno was given marching orders to "make banks lend to people who couldn't qualify," because the additional teeth that Clinton's HUD folks put in, were largely ignored. Reno sued several banks for "racial bias" because they wouldn't loan to people with lousy credit and/or work histories, causing old bank in Delaware to go under in the beginning of the crisis.
As luck would have it, the ill conceived Graham, Leach, Blyley act happened at that time and the removal of the Glass-Steagall act allowing commercial "bankers" to own regular banks began the next tsnuami of bad lending. Essentially, because Clinton's Justice Deparment forced banks to make bad loans, the new "bankers" (who are nothing but sharks), figured out how to sell these bad loans by disguising them in tranches (packages of "mortgage backed securities" which normally had strong characteristics.
Congressional oversight was completely missing during this era. Barney Frank's lover was a high ranking officer in Fannie Mae, and Barney kept all heat off of him. Chris Dodd, in the Senate got sweetheart loans from Angelo Mozillo (chairman of Countrywide mortgage) so he didn't do his duty either. In fact, both went out of their way to discourage the attempts by the Bush II administration from doing anything about this unfolding mess.
There were many other players producing loans for people who never had a chance to pay them back in those days. One of the most aggressive and scurrilous was Penny Pritzger and her husband. Now, she's being considered for Commerce Secretary. Anyone want to guess how that will work out?
In short, Government messing around to "do good" in free markets makes an absolute disaster out of the free market, then the very Government administrators and politicians that caused it all skate free and blame the banks for doing what they told them to do, and it's especially upsetting since the politicians were completely derelict in their oversight responsibilities.
Now we have Dodd-Frank hampering the free market and causing all sorts of bad behavior as people try to avoid running afoul of the often contradictory aspects of that ridiculous piece of legislation.
GRI, CRS, ABR, CLHMS, e-Pro