Who is to blame?

Answers adapted from posts by some really smart people at the Actuarial Outpost.

Asset Backed Securities take future cash flows (lease payments, mortgage payments, etc) and accelerate them. You get money today for cash flow in the future. This is borrowing from the future. And all that liquidity came rushing into the global markets today. It needed a place to be invested. Boom - huge investment bubbles formed as the money chases yield. Risk blossomed, but the money had to be invested someplace.

Companies working on very small margins but using leverage to increase profits on those small margins (This is the ONLY spot where I'll accept government regulation being lax, but it was the rating agencies and counterparties fault more than anyone.)

Congress created the GSEs and then assiduously failed to regulate them. No private entity could have behaved the way Fannie Mae & Freddie Mac behaved (not producing financials for THREE YEARS, cooking the books with little or no repercussions, amassing mind-boggling levels of debt).

Crooked mortgage brokers.

Freddie Mac and Fannie Mae forcing the 'market' for lower rates and underwriting guidelines. The market won that battle.

Government wanting EVERYONE to be able to afford homes they could not afford.

People who (a) took out a loan with low initial payments in the beginning because they believed they could refinance in a few years right before the payments blew up... but, oops, now they can't get a refi because the house isn't worth as much as they owe or (b) were making their mortgage payments and living off credit cards, and then refinancing to pay off the credit cards, repeat. Now that they can't refinance the house to pay the credit cards anymore, they've got credit card bills and mortgage bills together that they can't pay.

Rating agencies that gave AAA and AA ratings to paper that should have been rated B or CCC at the most.