China entered the World Trade Organization in 2001 and millions in the US lost their manufacturing jobs. This resulted in a drop in personal income for the working class and as a result loan demand slowed down so banks got more aggressive in their lending practices as measured by money down, income needed, etc.
To make up for lost income, many people used home equity loans as a piggy bank. Banks were more than happy to do the home equity loans and the easy financing jacked up the price of real estate. A great movie to watch on this is "The Big Short".
In addition to this, Congress repealed Depression era laws (Glass-Steagall) that kept commercial banking and investment banking as separate banks. So now, the aggressive trader at the bank could take money that Grandma put in the bank in CD's and leverage the crap out of it (35 to 1 or more) and trade it. If the trader hit it, he was a hero. If he blew it, the $ was FDIC insured.
When the gov gets involved in the econ., it can create market distortions. A classic example today, is with $9 Trillion of Quantitative Easing jacking up the stock market.
I am and have been 100% in cash. I will let the markets collapse and then buy at the bottom.