It started off with irresponsible lending by the banks, which was backed implicitly by the government, to individuals who wanted to buy property – and not just one. Investment banks then bought these loans from the banks that had originated them, and proceeded to create complex financial products anchored to these loans, which were then peddled to other investors.
Some of those investors were pension funds, and state governments – funds that basically came from hardworking families’ taxes and savings. Such funds are only allowed to invest in riskless assets, ones which are considered as safe as possible. But most investors did not truly understand the nature of these products, and instead turned to rating agencies for assurance.