Behind AIG's Crisis, Blind Eye to a Web of Risk - NYTimes.com: "Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.

Originally intended to diminish risk and spread prosperity, these inventions instead magnified the impact of bad mortgages like the ones that felled Bear Stearns and Lehman and now threaten the entire economy."
--------------------
This is why the blame is all over the place, from Main Street to Wall Street to Washington, DC. People bought houses they knew they couldn't pay for. Banks lent them money, using a host of "here comes the foreclosure" deals: interest only, ARMS, no down payment, no verification of income and assets, and so on. Anything to make the loan. The federal reserve kept overall interest rates low to induce even more borrowing, and mortgage rates stayed low as well. Politicians ordered lenders to make risky loans to "first time home buyers" and got Fannie Mae into the business of buying them, and also left the derivatives market unregulated. Investors bought mortgage backed securities that everybody knew were backed by high-risk loans because of the guarantees from Fannie Mae and insurers. Insurers came up with "creative" credit derivatives such as the various kinds of credit default swaps to deal with the risk. But the whole house of cards was premised on housing prices going up forever, even though it had to be obvious to everybody that such a thing is completely impossible. And every single person in the housing market knew that sooner or later, when prices stopped going up, a huge number of people were going to lose their homes to foreclosure. They didn't know how far the consequences would go, but they sure knew the foreclosures were coming.

By the way, AIG's stock price went from $22.76 per share on Sept.8 to $2.05 on Sept. 17. Biggest insurance company in the world.