dippin

It was loose regulations plus bad regulations.

Loose regulations meant that banks and institutions like goldman sachs could leverage their positions to ridiculous amounts, give shoddy advice, and insulate itself from bad loans by passing on the risk.

Bad regulations are the ones regarding acceptable risk. That is, on one hand they loosened financial regulations, on the other they made bad regulations regarding how to measure how much risk an institution was subjected to. I.e., the idea was "go crazy, do what you want, as long as your overall risk is low." How was that risk measured? By the so called "nationally recognized statistical research organizations"(NRSROs).

It was a sort of circular system: private financial institutions that did research (Standard and Poors, Moodys, Fitch's) had a lot of power on deciding what was acceptable risk due to these bad regulations. These research institutions made most of their money from the other financial institutions that were creating the financial instruments, either through receiving money from the ratings, or through consulting on how to lower the ratings. As you can imagine, the conflict of interest is enormous: banks needed the "blessing" of NRSROs to do certain transactions, but they were also the main clients and source of funds of the NRSROs. Kinda like relying on your bartender to keep you sober.

So it was this mixture of loose and bad regulation that created it all.

Monetary policy adds fuel to the fire, but doesn't generate the fire. People don't make bad investments simply because interest rates are lower. But people who were already making bad investments due to other reasons will make MORE bad investments when interest rates are lower.