What actually caused the financial crisis in the United States?

From a financial consultant to major corporations (who wishes to remain anonymous):

This was government driven from the start. The systemic risk was injected by Fannie Mae, Freddie Mac, and fueled by the Fed. Congress continued to encourage the bad behavior by not reining in Fannie and Freddie and in many cases encouraged them to go further. Regulation also encouraged banks to load up on the hidden systemic risk.

Wall Street is primarily a symptom of the Governments off balance sheet social program financing scheme. It makes Enron look like child's play. Those in Government who are responsible are using the typical populist scapegoat ploy to avoid scrutiny.

The Fed provided the fuel in greater dollars. Fannie and Freddie were the conduit which incentivized the banks to increase loan originations. Fannie and Freddie fed the junk to Wall Street often misrepresenting subprime mortgages as prime, which were then packaged into opaque securities obscured through multiple parties and sheer numbers in a pool. The securities were then often mis-rated by S&P, Fitch, & Moody's (required by gov't regulation for bank investment) a defacto government oligopoly, which then affected the eventual under capitalization by the banks once the securities ratings were downgraded. Again banks were encouraged to invest in mortgage-backed securities by capital requirement regulations because they were perceived by regulators to be less risk than individual mortgages or typical securities such as bonds or commercial loans, etc.

Then Fannie was purchasing a large number of mortgage-backed securities essentially making the market and giving the market the impression these securities were more liquid than they really were, which increased the price. If these people were not in the government or in a Government Sponsored Entity, they would all be in jail today.

WSJ.com: The Lesson of Basel's Bean Counters
Decades of obsession with accounting standards couldn't overcome the perverse incentives created by 'too big to fail.'
http://online.wsj.com/article/SB10001424052748704508904575192534100550538.html
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WSJ.com: Angels Out of America
How the Dodd bill harms start-ups.
http://online.wsj.com/article/SB10001424052748704671904575194483171910348.html

Mr. Dodd's bill would change all this for the worse. Most preposterously, it would require that start-ups seeking angel investments file with the Securities and Exchange Commission and endure a 120-day review. Rare is the new company that doesn't need immediate access to the capital it raises, and a four-month delay is the kind of rule popular in banana republics that create few new businesses.

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WSJ.com: An Economy of Liars
When government and business collude, it's called crony capitalism. Expect more of this from the financial reforms contemplated in Washington.
http://online.wsj.com/article/SB10001424052748704508904575192430373566758.html

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately—not withstanding what any rule might otherwise allow. And financial institutions should have a duty of care to their customers. Lawyers tell me that would get us closer to the common law approach to fraud and bad dealing.

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WSJ.com: Staffer One Day, Opponent the Next
The revolving door can turn swiftly at the Securities and Exchange Commission.
http://online.wsj.com/article/SB20001424052702303450704575160043010579272.html
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WSJ.com: Fannie and Freddie Amnesia
Taxpayers are on the hook for about $400 billion, partly because Sen. Obama helped to block reform.
http://online.wsj.com/article/SB10001424052748704671904575193910683111250.html

The date of the Senate Banking Committee's action is important. It was in 2005 that the GSEs—which had been acquiring increasing numbers of subprime and Alt-A loans for many years in order to meet their HUD-imposed affordable housing requirements—accelerated the purchases that led to their 2008 insolvency. If legislation along the lines of the Senate committee's bill had been enacted in that year, many if not all the losses that Fannie and Freddie have suffered, and will suffer in the future, might have been avoided.

Why was there no action in the full Senate? As most Americans know today, it takes 60 votes to cut off debate in the Senate, and the Republicans had only 55. To close debate and proceed to the enactment of the committee-passed bill, the Republicans needed five Democrats to vote with them. But in a 45 member Democratic caucus that included Barack Obama and the current Senate Banking Chairman Christopher Dodd (D., Conn.), these votes could not be found.

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WSJ.com: The Dodd Bill and U.S. Competitiveness
Its new taxes and regulations will make the U.S. an unattractive jurisdiction for financial companies.
http://online.wsj.com/article/SB10001424052748704117304575137980120672008.html
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WSJ.com: If You Liked Fannie and Freddie...
... You'll love Chris Dodd's latest reform proposal. It would make many more companies too big to fail and lead to far greater financial consolidation.
http://online.wsj.com/article/SB10001424052748704743404575127541719271252.html

If passed in its current form, the bill would give the government control over the financial system in roughly the same way, and to the same extent, that ObamaCare would take over the nation's health care. There isn't a public option, exactly, but the private firms involved would be so heavily regulated that they would be effectively controlled by the government.

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WSJ.com: Most Pundits Are Wrong About the Bubble
The repeal of Glass-Steagall has helped us weather the storm.
http://online.wsj.com/article/SB122428270641246049.html

As for the evils of deregulation, exactly which measures are they referring to? Financial deregulation for the past three decades consisted of the removal of deposit interest-rate ceilings, the relaxation of branching powers, and allowing commercial banks to enter underwriting and insurance and other financial activities. Wasn't the ability for commercial and investment banks to merge (the result of the 1999 Gramm-Leach-Bliley Act, which repealed part of the 1933 Glass-Steagall Act) a major stabilizer to the financial system this past year? Indeed, it allowed Bear Stearns and Merrill Lynch to be acquired by J.P. Morgan Chase and Bank of America, and allowed Goldman Sachs and Morgan Stanley to convert to bank holding companies to help shore up their positions during the mid-September bear runs on their stocks.

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WSJ.com: "A Silver Lining to the Financial Crisis: A More Realistic View of Capitalism"
Two familiar scapegoats for the financial crisis---deregulation and bankers' bonuses--- don't appear to be responsible for the disaster.
http://online.wsj.com/article/SB10001424052748704454304575081680480599148.html

But under the recourse rule, "well-capitalized" American commercial banks were required to spend 80 percent more capital on commercial loans, 80 percent more capital on corporate bonds, and 60 percent more capital on individual mortgages than they had to spend on asset-backed securities, including mortgage-backed bonds, as long as these bonds were rated AA or AAA or were issued by a government-sponsored enterprise (GSE), such as Fannie or Freddie. Specifically, $2 in capital was required for every $100 in mortgage-backed bonds, compared to $5 for the same amount in mortgage loans and $10 for the same amount in commercial loans.

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WSJ.com: "The Price for Fannie and Freddie Keeps Going Up"
Barney Frank's decision to 'roll the dice' on subsidized housing is becoming an epic disaster for taxpayers.
http://online.wsj.com/article/SB10001424052748703278604574624681873427574.html

There is more to this ugly situation. New research by Edward Pinto, a former chief credit officer for Fannie Mae and a housing expert, has found that from the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime or Alt-A.

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WSJ.com: Let's Write the Rating Agencies Out of Our Law
By Robert Rosenkranz
http://online.wsj.com/article/SB123086073738348053.html

Indeed, that is the entire raison d'être of the $6 trillion structured-finance business, which serves little economic function other than as a rating-agency arbitrage. Subprime mortgages (and all manner of other risky loans) held directly by financial institutions are questionable assets with high associated capital charges. Each one alone would deserve a "junk" rating. Structured finance simply piles such risky assets into bundles and slices the bundles into tranches. The rating agencies deemed some 85% of the tranches by value as AAA, and nearly 99% as investment grade -- thus turning dross into gold by a sort of ratings alchemy.

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AmericanThinker.com: Why the Mortgage Crisis Happened
By M. Jay Wells
http://www.americanthinker.com/2008/10/what_really_happened_in_the_mo.html
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Video of the CSPAN congressional hearings on the Fannie Mae and Freddie Mac Accounting scandal which came to light in 2004.
see: http://www.youtube.com/watch?v=_MGT_cSi7Rs
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Clinton administration's "BANK AFFIRMATIVE ACTION"
Andrew Cuomo references a Federal Reserve Report that was later discredited.
http://www.youtube.com/watch?v=ivmL-lXNy64
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IBDeditorials.com: How the Fed, Media and Academia Aided and Abetted Lending Debacle
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=459798
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WSJ.com: A Mortgage Fable
http://online.wsj.com/article/SB122204078161261183.html
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WSJ.com: The Fannie Mae Gang
By Paul A. Gigot
http://online.wsj.com/article/SB121677050160675397.html
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WSJ.com: Information Haves and Have-Nots
http://online.wsj.com/article/SB122203382068860947.html
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NationalReview.com: Inside Obama's ACORN
By Stanley Kurtz
http://article.nationalreview.com/?q=NDZiMjkwMDczZWI5ODdjOWYxZTIzZGIyNzEyMjE0ODI=
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IBDeditorials.com: Congress Tries To Fix What It Broke
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=490605
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WSJ.com: Faith in Ratings
http://online.wsj.com/article/SB122212668589565225.html
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WSJ.com: The Moody's Blues
http://online.wsj.com/article/SB120303641478270219.html
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WSJ.com: AAA Oligopoly
http://online.wsj.com/article/SB120398754592392261.html
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WSJ.com: Another 'Deregulation' Myth
http://online.wsj.com/article/SB122428201410246019.html
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WSJ.com: Spitzer and Sarbox Were Deregulation?
http://online.wsj.com/article/SB122541609109386729.html
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WSJ.com: The Ratings Racket
http://online.wsj.com/article/SB121435051391301517.html
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WSJ.com: The Meltdown That Wasn't - A primer on credit default swaps, the latest Beltway scapegoat.
http://online.wsj.com/article/SB122670411909729683.html
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WSJ.com: Bad Accounting Rules Helped Sink AIG
http://online.wsj.com/article/SB122169320421449849.html
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NYTimes.com: Dear A.I.G., I Quit! http://www.nytimes.com/2009/03/25/opinion/25desantis.html
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SeattlePI.com: Activists vent at AIG executives http://www.seattlepi.com/business/404117_aigbus22.html