Many people who either don't understand economics or are personally against Austrian Economic theory and Free Markets have said that deregulation caused the collapse. They place the blame on "Capitalism" and the repeal of Glass-Steagall. This of course is completely the opposite of how exactly we got the Housing Bubble and why we had the problem that we did. Now I have not seen "The Big Short", but from the trailer I doubt the movie will go much into actual economic narrative and will instead prioritize entertainment over facts. It's Hollywood and I don't blame them, however before tens of thousands of people go to see this movie I would like to set the record strait as to how the problem presented in the film actually came to be.
First I will cover Glass-Steagall. It was a law passed in 1933 which was partially repealed in 1999. The only part the was repealed was the restriction on commercial and investment banks being controlled by the same holding company. Now the truth is that Lehman Brothers, Bear Stearns and Merrill Lynch were only investment banks and never had anything to do with commercial banking. The banking industry was and still is one of the most heavily regulated industries in America, yet many would have us believe that it was lack of regulation that allowed the Housing Market to implode the way it did.
The actual culprits in the Housing Collapse were Government and Federal Reserve policy. In a 2009 article from the Foundation for Economic Education Robert Murphy wrote,
"Greenspan’s easy-money policy coincided with the upswing in the housing boom. When the Fed began raising rates, housing prices tapered off and then began plunging. The connection between Fed policy and the housing bubble is so obvious that even mainstream analysts endorse the theory."
He also notes the Community Reinvestment Act. This act pressured banks into giving loans in "low-income, weak-credit areas". This is an important point. The trailer for the film "The Big Short" along with many people from the "Occupy Wall Street Movement" have claimed that greed caused the banks to give out bad, high-risk loans. However the truth is that government policy actually pushed them to do so.
There was an interview with The American Enterprise Institute’s Peter Wallison in the June 2012 issue of Reason Magazine and in it Wallison said,
"Fannie Mae and Freddie Mac were the implementers of a substantial portion of the government’s housing policy. Basically, the government’s housing policy was intended to provide financing to people who were unable for one reason or another—mostly lack of resources—to get mortgage credit. And Fannie and Freddie were agents that the government worked through. However, they also used something called the Community Reinvestment Act. HUD [the Department of Housing and Urban Development], which was basically in charge of all of these programs, also had its own program which involved the mortgage bankers’ association, and there were other HUD programs that encouraged the granting of mortgages to people who didn’t have the financial resources to support them. In the end, by 2008 there were 28 million subprime or very weak mortgages. Those are known as Alt-A mortgages. That’s half, incidentally, of all mortgages in the financial system. Of that 28 million, 20.4 million were on the books of government agencies like Fannie Mae and Freddie Mac and the FHA [Federal Housing Administration] and other government agencies and banks that were holding them as a requirement of the Community Reinvestment Act, which applied to banks. So that’s why I say that the government’s housing policy was responsible for creating these mortgages. They never would have been created without the government demanding that they be created and providing the funds to buy them."
I think it is safe to say the government was far more responsible for the Housing Crisis that we experienced than was the Free Market. I say all this in order to point out government doesn't solve problems, it creates them.