2008 Mortgage Crisis in a nutshell
So the government forces banks to make shoddy sub-prime mortgage loans, because of racially dubious practices which ultimately leads to a climate of lax mortgage practices.
Banks, plush with all these shoddy mortgages try to reduce risk, by bundling slices of thousands of these mortgages into MBS, or mortgage backed securities, then get these MBS insured by AIG against default with credit default swaps.
Then they convince ratings agencies Moody’s and S&P to rate them highly, and they get them backed by Fannie and Freddie Mac, which are government-sponsored agencies (much like the Federal Reserve). Sp when they sell these high yielding MBS’ to unsuspecting investors and banks it turns out all the mortgages are junk and everything collapses and the government bails out the very banks they induced into making this mess in the first place.