Since I read you guys’ comments about the mortgage crisis, I figure I’ll add my two cents.

While subprime definitely had a big part in the onset of the mortgage crisis, it was actually one component of a larger problem. The bubble was already rapidly being blown when interest rates were set excessively low (below the market rate) in the late 90s, then lower after the burst of the Nasdaq bubble (’00-01). These low interest rates made credit cheap, causing real estate to boom amid skyrocketing prices. But just like the stock market bubble preceding the Great Depression, when the fed became concerned and began to raise interest rates again, they popped the enormous bubble and moves to re-lower interest rates were unable to stop it from crashing down.

So the current problems are symptoms of a fundamentally flawed monetary system, where central planners set the interest rate rather than the free market. This is exacerbated by government’s inevitably bad fiscal policy, which is enabled by the fed to feature virtually limitless spending.

So while the subprime mortgages definitely contributed to the bubble and hastened its growth, it was actually a component of the larger fundamental problem–the federal reserve’s manipulation and dictation of interest rates.

More information on this explanation can be found here: http://www.capmag.com/article.asp?ID=5353

Ironically, before becoming chairman of the Federal Reserve, Alan Greenspan warned of the very effects his actions brought about:
http://www.usagold.com/gildedopinion/greenspan.html

An elaboration on this view of the fed can be found here:
http://www.reason.com/news/show/38384.html

When the housing market collapsed, and these individuals realized that they owed far more than their house was worth, they started defaulting on their loans. This is what caused the current financial crisis. In other words, as bad as Fannie and Freddie were, by forcing them to lower their standards and lend to people who didn’t qualify, Clinton directly contributed to the current crisis.

For an explanation of why the subprime market collapse has such a catastrophic effect, see http://www.moneyweek.com/personal-finance/what-mortgage-backed-securities-mean-for-the-us-housing-market.aspx and http://en.wikipedia.org/wiki/Subprime_mortgage_crisis.