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As is often in bubbles, there wasn't just one cause. See my post #16 for several of them propagating the moral hazard behind this one, all having to do with government's policies, laws and regulations. Having Democrats in charge of Congress, doing everything possible to make economy much worse than it could have been, for their electoral purposes, simply exacerbated the financial crisis. I think we can see it clearly every day now.

This crisis is far more dangerous than mere bubbles because it affects entire financial system, not just an industry or a sector of the economy as the case was in more recent bubbles. But outright Enron-style fraudulent balance sheets (like off-balance liabilities and side-agreements) or inflated income statements, which is what SOX was supposedly designed to prevent, was not one of the causes.

Politicians and government bureaucrats who have either sponsored or have stood in the way of fixing the worst problems causing the bubble (such as GSEs Fannie and Freddie) would like to misdirect our attention from themselves and point fingers at "greedy" or "incompetent" CEOs or at "deregulation" or at Republican administrations, but it was their own legal and political actions and inactions (such as refusing restructuring and deleveraging of GSEe as advocated by Bush in 2001 and later, in 2005) and the moral hazard that they introduced that have been the primary reasons and "stimulus" behind this fiasco.

In other words, excess of politically motivated regulations of private markets and economy have led to this being significantly more than just a natural business cycle slowdown, not the "inadequate regulation" as the article claimed.

I think you are saying that in every case, lack of regulation contributed nothing to the mess. I think you are partly right, in that the CRA resulted in some unsound mortgage loans, and Dem policies did slow down the economy. But I believe that in some cases, not all, lack of regulation contributed to the disaster.

In 2004 the SEC loosened the leverage rules, allowing some firms to go from maximum debt-to-net-capital ratio of 12 to 1, to much higher ratios. Only 5 were allowed to do that. Who were they? Surprise, surprise. Do Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley sound familiar?

Sometimes it seemed to happen because of both over-regulation and lender corruption. Countrywide said it fudged appraisal values because government regulations required them to make loans they did not want to.

It's really hard to pinpoint what happened sometimes. For example: University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations.

But in many cases these banks and mortgage companies not subject to CRA, could pass the pain on to Fannie and Freddie, or bundle up mortgages to be passed on to investment banks. The investment banks were playing craps at higher odds than ever. Not good.

And then we have Barney Frank in 2003 saying that Fannie and Freddie were just fine. Obviously, he wanted to keep the money flowing, and damn the consequences.

In summary, I agree that part of the problem is overregulation to meet leftist ideological goals. And I believe part of the problem is failure to regulate, (Fannie and Freddie, and the SEC allowing investment banks to play craps with money entrusted to them) so I do not totally agree with #16.