The All-Thing has a page on it, of course: Subprime lending.

And the answer to your quandry: I think it's a bit of everything.

• Lenders went beyond reason and certainly some preyed on people.
  
• The lack of gov't regulation, or even cautionary words from the Fed (which is what I find most unconscionable), allowed it to happen.
  
• People took loans when they clearly were not in a financial situation where they should have.
  

Blame spread everywhere. I'm increasingly inclined to think we should let it all burn down.

Poz - thanks. I happened to catch a tiny article by Jim Cramer in the local free paper this morning and he pretty much said the same thing.

I am in Poz's camp - let it all burn down. The lenders need to suffer some penalty for making bad loans. The borrowers need to pay for being stupid.

In my opinion this is a natural result of the extension of the derivative market. Lenders can cut mortgages up in many more ways than they could 10 years ago. As a result, they can make loans that they could not make because the can securitize the loans and sell them. This is a good development as more people can get loans. But, like anything good, if it is taken to an extreme, it becomes a problem. It was taken to an extreme.

There is a further explanation that involves the inability of S&P to accurately rate the quality of these derivatives. Even though they claim that they can. S&P has no clue what the quality of the new securities are and neither does anyone else, but the claim they can grade the bonds. This leads to very bad pricing of the risk and the potential for massive financial losses to the bond holders. However, the nuts and bolts of that discussion are very technical.

mess