http://en.wikipedia.org/wiki/Governm...ortgage_crisis
The Securities and Exchange Commission (SEC) has conceded that self-regulation of investment banks contributed to the crisis. The SEC relaxed rules in 2004 that enabled investment banks to substantially increase the level of debt they were taking on, fueling the growth in mortgage-backed securities supporting subprime mortgages.[7][8]
The top five US investment banks each significantly increased their financial leverage during the 2004–2007 time period (see diagram), which increased their vulnerability to the MBS losses. These five institutions reported over $4.1 trillion in debt for fiscal year 2007, a figure roughly 30% the size of the U.S. economy. Three of the five either went bankrupt (Lehman Brothers) or were sold at fire-sale prices to other banks (Bear Stearns and Merrill Lynch) during 2008, creating instability in the global financial system. The remaining two converted to commercial bank models in order to qualify for Troubled Asset Relief Program funds (Goldman Sachs and Morgan Stanley).[9]
The SEC is also responsible for establishing financial disclosure rules. Critics have argued that disclosure throughout the crisis was ineffective, particularly regarding the health of financial institutions and the valuation of mortgage-backed securities.[10][11]
President Bush advocated the "Ownership society." According to the New York Times, "he pushed hard to expand home ownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards." He insisted that Fannie Mae and Freddie Mac (the GSE) meet low-income housing goals and advocated government loans to help low-income homeowners make down-payments. The Bush administration also replaced Fannie and Freddie's chief regulator in 2003 immediately after the regulator published a report warning of the risks posed by the GSE.[68]