Kevin Drum asks why we had a housing bubble and concludes:
The real difference seems to lie not in housing becoming a better target for investment, but in real goods and services becoming less attractive ones. ...
But this seems wrong. There was a complete collapse of underwriting standards for housing loans. So it was very easy to speculate in housing with other people's money. This made housing a more attractive target for speculative investment than other areas where loans were harder to get meaning you were required to risk more of your own money. So there was a flood of borrowed money into housing which drove up prices which attracted still more investment. A classic asset price bubble. You don't need easy credit for an asset price bubble but it certainly helps.
Matthew Yglesias agrees but then adds:
All that said, it’s worth emphasizing that the mere existence of an asset-price bubble and its subsequent collapse doesn't necessarily lead to a years-long recession. A worse policy response than the one we got could have saddled us with Depression conditions, but a better one could have avoided a ton of the human suffering we’re seeing right now.
Of course an asset price bubble doesn't have to cause major problems if it is small and isolated. But this asset bubble was allowed to grow to the point where it endangered the solvency of many big banks and other financial institutions. Once that has occurred there is likely no easy way out. It is unlikely of course that the policy response was perfect but I don't see any obvious way to have avoided our present problems. Yglesias has consistently claimed more can and should be done but that seems to me to be mostly wishful thinking.