“In 2007, the total volume of home sales in the United States was about $1.7 trillion—paltry when compared with the $40 trillion in stocks that are traded every year. But in contrast to the activity that was taking place on Main Street, Wall Street was making bets on housing at furious rates. In 2007, the total volume of trades in mortgage-backed securities was about $80 trillion. That meant that for every dollar that someone was willing to put in a mortgage, Wall Street was making almost $50 worth of bets on the side."
"Lehman Brothers had a leverage ratio of about 33 to 1, meaning that it had about $1 in capital for every $33 in financial positions that it held. This meant that if there was just a 3 to 4 percent decline in the value of its portfolio, Lehman Brothers would have negative equity and would potentially face bankruptcy."
Nate Silver, The Signal and the Noise
Build derivatives and CDOs and trade at 50-to-1. Leverage those trades at 33-to-1. Get the rating companies to give those securities AAA ratings, despite having nothing on which to base those estimates. Then add in hedge funds and trades like Magnetar, where brokers deliberately packed tranches with toxic loans and then made money when securities deliberately setup to fail actually failed.
The housing industry was lead to slaughter not by government, but by Wall Street. It's hard to generate trillions in CDOs if you don't have enough of the loans on which those securities are based.