http://members.forbes.com/forbes/2007/0917/023.html
Your required reading.
“...What Alan Greenspan did and what his successor, Ben Bernanke, has failed to undo is the exact opposite of Greenspan’s big blunder in the late 1990s, when the Federal Reserve inadvertently tightened up. That squeeze sent commodities crashing—oil fell to $10 a barrel—and brought on the 2000—01 recession.
Since 2004 the Fed has raised short-term interest rates in numerous baby steps, but—and this is key— it has failed to mop up the excess money it created.
What does all this have to do with the home mortgage mess? When excess money is created, lenders and investors feel the itch to put it to work. Think of it as too much money chasing too few sound business and investment opportunities. Standards deteriorate. The already booming housing market went on steroids, as did hedge funds and equity funds.