A lot of people like to blame bad mortgages for the financial meltdown, but that was just the beginning of what makes this recession unlike others. The real damage was that big financial institutions were using mechanisms like this guy's software and David Li's formulas to leverage mortgage and bond funds to insane proportions (like in some instances, 20 to 1). When these supposedly safe financial instruments like collateralized debt obligations and credit swap defaults, which mixed good paper with bad, started to fail they took out hundreds of billions of value that was pretty much made up out of thin air by these speculative instruments. This money was of course propping up these firms so the inevitable result from losing so much value nearly overnight is collapse. Now it's taxpayer money propping up the same financial firms that caused all this, and they're STILL screaming for no new regulation!
Sorry if this is too simplistic but it took a banking executive with an MBA and Masters in statistics two hours to fully explain this to me and she still admitted she doesn't understand it fully. The problem was no one in the industry ever did.