What went wrong with the U.S. economy 2008?

Many scholars have differing views and opinions regarding the root cause of the US financial system in late 2007 through 2008. It is this author's thesis that the collapse of Lehman Brothers, a preeminent global investment bank, in September 2008 is the direct cause of the near collapse world’s financial system. The taxpayer-financed bail-out to shore up the financial industry was an unprecedented, yet necessary event in order to maintain faith and credit in the US Economy. The ensuing credit crunch, which directly hit the middle and lower class citizens of the US turned what was already a nasty downturn into the worst recession in 80 years. Massive monetary and fiscal stimulus by the Federal Reserve Board of Governors and the Federal Reserve Open Market Committee were effective to the point of turning the recession into a depression.
The effects of the economic downturn from 2008 can be narrowed down to a so called Perfect Storm of scenarios. Accordingly, the simultaneous happenstance of such can be described as Wall Street not putting into place sound risk-management processes to regulate the practices of investment banks such as Lehman. Federal and State Securities Regulators also did not properly or effectively oversee these processes or the banks, investment banks, and Fannie Mae and Freddie Mac Pertaining to Lehman specifically, the credit and insurance rating agencies’ models were inexorably flawed and the agencies themselves had conflicts of interest, allowing complex and ultimately toxic instruments to be released into the financial market. This irresponsible lack of oversight by regulators precipitated borrowers obtaining mortgages under false pretenses, and unregulated mortgage brokers taking advantage of unsophisticated buyers.These homebuyers mistakenly believed housing prices would always go up and the under underregulated financial institutions were more than happy to lend to them.
In hindsight, it is clear the crisis had multiple causes. The most obvious is the financiers themselves—especially as seen in the subprime mortgage backing and questionalbe practices of issuing woefully defunct securities by Lehman Brothers. The demise of the fallacy that Lehman Brothers had control of its risk management practices, when in fact they simply ignored them, should be seen as the precipitating cause of the economic downturn in 2008. The galliant efforts of the FOMC and the FRBG deserve a collective commendation for their efforts, policy implementation, and enhanced regulatory oversight of the crisis of 2008. Without such, the recession would inevitably became the "Big D-word" that all economists inherently fear for the respective economies.

In 2008, the United States faced a recession with financial woes not seen since the Great Depression. To answer this question, you will need to identify events that occurred leading up to 2008 that impacted the economy. One of the biggest financial issues of that time was the subprime mortgages issued to home owners. Many individuals bought homes with low interest loans that later adjusted to double digit interest rates. Many of these loans were bought up by Freddie Mac and Fannie Mae, who then turned around and sold them to investment banks. Insurance companies got involved insuring losses if the mortgages went into default. Everyone was making money as the property values continued to raise. However, the housing market began to free fall in 2007. As home values came crashing down, mortgage holders were unable to refinance their homes or sell without owing on their loans. Foreclosures increased dramatically placing financial stress on the mortgage and insurance companies, with some having to be bailed out by the U.S. government. You may also want to look at the deregulation of the banking industry in the 1990s and how it helped create this crisis. You could break your response into three sections including the mistakes of the U.S. government, the U.S. citizens and the banking industry.