The real story is not complicated.
"Wall Street's Gullible Occupiers. The protesters have been sold a bill of goods. Reckless government policies, not private greed, brought about the housing bubble and resulting financial crisis." One quote:
Beginning in 1992, the government required Fannie Mae and Freddie Mac to direct a substantial portion of their mortgage financing to borrowers who were at or below the median income in their communities. The original legislative quota was 30%. But the Department of Housing and Urban Development was given authority to adjust it, and through the Bill Clinton and George W. Bush administrations HUD raised the quota to 50% by 2000 and 55% by 2007.
Read the whole thing. The government essentially forced lenders into the subprime markets and to violate their own lending standards. Naturally, they didn't want these crappy loans on their books, so they packaged them as derivatives and sold them to eager buyers worldwide (unaccountably rated triple A when any fool could see that they were below investment-grade). With that, combined with low interest rates and people using their suddenly-valuable homes as ATMs, the housing and construction debt-bubble was created and inevitably burst.
Why the world's financial geniuses didn't see it coming is beyond me. Everybody on the internet saw it coming. All bubbles burst, but this was a biggie-sized one just like the internet bubble. Based on my reading, I had shorted housing-related equities, did not buy my living quarters which I could not have afforded anyway, and made out like a bandit. It was just too easy, even for an amateur. Call me greedy.
Of course, the rest of my quite modest portfolio did horribly. Equity baskets have been a bad bet for many years now. Munis stink too. Sorry I didn't buy gold, but I always thought gold was for end-of-the-world nutjobs.
I am no economist nor do I play one on the internet, but my take on things today is that fear of government is part of what is holding back investment in the US. That, plus people freaking out about their debt - and their lower-to-zero incomes.
It is not particularly mature to blame banks who were willing to lend you money, though, even when they perhaps doubted your ability to repay it. An adult who takes on debt is supposed to be an honorable citizen who will repay that debt, or have their credit and reputation ruined for ten years or more. Employers check your credit rating.
My only debts are my student loans which were such a good deal that I am in no hurry to pay them all off, as long as my career proceeds on course. However, periodically I borrow money from my local bank or my credit cards. Small amounts - $5000-10,000 - then pay it back after a couple of months. I use that trick to keep my credit rating up to date and in good shape (I rent). One of these days, I will really use my credit card to take a good girlfriend or future spouse on a bike tour around Sicily.
I can't wait.
