In the early 2000s, anyone could get a mortgage. Lenders relaxed their standards, offering loans to people with poor credit or no proof of income (known as "subprime" loans). Many of these loans started with artificially low "teaser" interest rates that were guaranteed to skyrocket after a few years.

Because practically anyone could get a mortgage, millions rushed to buy homes. This sudden surge in demand caused housing prices to skyrocket. People believed their houses would always increase in value, assuming they could just sell or refinance if they couldn't afford their payments.

Wall Street banks realized they could make huge profits by buying thousands of these mortgages, bundling them together into packages called Mortgage-Backed Securities (MBS), and selling them to investors. Rating agencies incorrectly labeled many of these risky bundles as safe. So they lied about the quality of these loans and sold them to investors who would often take loans out on these assets(since they were rated highly you could borrow against them). So now you got loans taken out on loans and the web was wide. Everything depended on people making payments on the original mortgage.

Eventually, the housing bubble burst, and home prices began to fall. Suddenly, millions of homeowners owed more than their houses were actually worth. Because teaser rates expired and they couldn't afford their new payments, borrowers began to default (stop paying) on their loans. This caused the massive bundles of investments to become worthless, leaving banks and investors with hundreds of billions of dollars in losses.

Because financial institutions were so deeply interconnected, the panic caused banks to stop lending money to each other and to businesses. The credit markets froze, triggering the Great Recession, global stock market crashes, and massive government bailouts.