Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse - Thomas E. Woods, Jr

Woods gives an excellent explanation of how we got into this economic mess. Two main problems were that Fanny and Freddie loosened mortgage lending requirements and the Fed excessively lowered interest rates. This created the huge housing bubble. Also, increased risk was introduced when banks sold loans that were then packaged together as mortgage backed securities.