The housing bust is really no one's fault, specifically. It's a confluence of factors. My following ideas on the subject are not meant to insult any particular groups, but just to state the facts.
The Community Reinvestment Act (CRA) was a piece of legislation from the 1970s that encouraged investment in poor areas. It was amended several times since then. Under Clinton, it was changed in 1995 to make it easier for poor people to get more credit in their names. Banks were required to pay more attention to places that they otherwise had refused to do business in, and had to give some sort of loan options to people in those areas.
Now this all sprang from good intentions. This was meant to be a way of getting private industry to revitalize inner city areas and try to get people there to own their own homes. It's a proven fact that higher rates of home ownership equals a greater feeling of responsibility. It's no secret that banks often look down on black people. That's just wrong - if you go into a bank (what's left of banks nowadays) they should give a family from a low-income area the same chance, credit-wise, as one who comes from a country club. But, credit and ability to pay off the loan should not be overlooked. Banks aren't charities.
This seems to have worked out for a few years. Poor people got loans, but they were responsible and worked to pay off their houses. Home ownership went up, crime went down a little, and everything was normal.
After the dot com bust and 9/11, interest rates took a nose dive. And hey, here's these really liberal CRA rules...so there was a HUGE STAMPEDE FOR HOUSES AND PROPERTY!!!!!!!
This wouldn't even have been so bad, except they kept rates at the rock-bottom for three years - leaving the door open long enough to make sure that any possible demand for houses was completely saturated. Then rates started to rise, ARMs on CRA-style mortgages rose, so prices plunged, foreclosures shot up, banks got poisoned, etc...
Some point the finger at Carter for coming up with the CRA in the first place. Clinton is a popular target, but he couldn't have known things would work themselves out like they did. The program had been around for years and never caused problems - although it does show the folly of government intervention in virtually any area.
In reality, the Federal Reserve under Bush should have known better than to leave interest rates so low for so many years. They should have seen the types of loans that were coming in, but no one wanted to be the department that threw a bucket of water on the economy. The whole country was tied up in anti-terrorist propaganda, real estate was booming through the roof, and it simply wasn't fashionable to talk about mundane and vague economic troubles in the far future.
