1) mark to market accounting was a huge huge problem. When the housing market collapsed the market value of homes was way down which meant the banks in effect held no collateral for the loans they made many of which were held on their books and not sold off. This meant they had to raise capital to meet capital requirements or in effect declare bankruptcy. 2) Interstingly, mark to market became important in the wake of the Enron scandal wherein Enron had played fast and loose with imagined market values. In sum, the housing crisis was in part brought on by new liberal regulations arising from the Enron scandal. This is why when a liberal talks about "well regulated capitalism" you want to shoot him. It is naive beyond belief. 3) Most importantly, the other liberal policy was to inflate or bubble up the housing market with low interest rates so this must be seem as the heart of the liberal housing crisis. Left and right agree too!! CATO: "First consider the once controversial view that the crisis was largely caused by the Fed's holding interest rates too low for too long after the 2001 recession. This view is now so widely held that the editorial pages of both the NY Times and the Wall Street Journal agree on its validity!"...John B. Taylor( arch conservative, author of the Taylor Rule) " The Federal reserve having done so much to create the problems in which the economy is now mired, having mistakenly thought that even after the housing bubble burst the problems were contained, and having underestimated the severity of the crisis, now wants to make a contribution to preventing the economy from sinking into a Japanese Style malaise....... - "Joseph Stiglitz" You may not have heard of the Federal Reserve system but it exists to inflate and deflate the currency supply through the housing market. They inflated too much for too long. This caused what they call a housing bubble. While the bubble was inflating all the big banks and many insurance companies bought bubble mortgages thinking they were sound rather than merely purchased or made possible by newly printed funny money. When the bubble deflated they all lost money on the mortgages. It would be analogous to the government making cars and giving them to GM so everyone could have a car. If GM got them by the ton and for very little money of course they would find a way to move them . This is essentially what the Banks did with the free money. In addition to the Federal Reserve System you had Fanny and Freddie which bought and guaranteed many of the mortgages so no one had to worry about them failing.