It was the building frenzy which created the bubble and it's eventual bursting. Without it, the supply of homes and home prices would have remained stable and few people would have lost money. The derivitives would have held their value. Fannie and Freddie would have been fine. That was the root of the problem. They built too many homes after the recession of '01 to meet the artificially created demand. Everyone was buying homes. They didn't want to get left out of the ridiculously low interest rates and they were afraid the way home prices were skyrocketing they would never be able to afford a home if they waited. Market manipulation by Greenspan and Bush created the housing bubble. Had the demand not been there the bubble could not have happened. They used the housing sector to get us out of recession. It worked for awhile too.