This WSJ piece is worth reading, but this paragraph really stood out:
The 2001 recession might have ended the bubble, but the Federal Reserve decided to pursue an unusually expansionary monetary policy in order to counteract the downturn. When the Fed increased liquidity, money naturally flowed to the fastest expanding sector. Both the Clinton and Bush administrations aggressively pursued the goal of expanding homeownership, so credit standards eroded. Lenders and the investment banks that securitized mortgages used rising home prices to justify loans to buyers with limited assets and income. Rating agencies accepted the hypothesis of ever rising home values, gave large portions of each security issue an investment-grade rating, and investors gobbled them up.
After spending months trying to figure out what is happening, that really seems to be the best one paragraph description I have seen of what we are currently experiencing. Also, if you have the time, read Andrew Rosenfield in the Times on how to let a bank fail.
Also, here is a piece I read over the weekend called “It Really Is All Greenspan’s Fault“ that you might find interesting.