Wall Street & The Hill

Bankers from large financial institutions recognized that the mortgage industry could become even more lucrative if they lent to individuals who had poor credit histories. Financial professionals were able to convince people with poor credit that they could afford mortgages they in reality could not.

These borrowers were called "subprime borrowers" - people who should never have qualified for loans in the first place. Yet banks continued to approve their applications, driven purely by short-term profit.

The bankers would combine several subprime borrowers' loans into packaged securities called "mortgage-backed securities" (MBS). These toxic assets were then sold to separate investors who were under the impression they were buying secure mortgages.

When people began foreclosing—unable to pay their mortgages—these securities began to fail, resulting in the loss of millions of dollars in assets and several million properties.

The government agencies supposed to be regulating these loans were doing an incredibly poor job, allowing many applications to sneak by regulations and standards. The "shadow banking system" grew too large to be effectively monitored.

As noted by experts, lawmakers didn't fully understand the collapsing financial system. The Dodd-Frank Act of 2010 aimed to restrict riskier activities, but many provisions were rolled back or weakened by political pressure.