The cause of that financial crisis

This has to be my contender for the best explanation so far.

Insufficient securitisation.

Start with what was (one of) the aim(s) of securitisation. To spread the risk around.

We've always had (and always will) a problem with banks financing mortgages. For banks borrow short from their depositors, which are payable on demand, and they lend for decades on mortgages. Given that banks are always going to be leveraged this causes that periodic problem known as a run.

Super, so, why not take the mortgage, pool it with others and then sell it to non-leveraged investors? Pension funds looking for long term bonds for example? Note that such funds aren't leveraged, so a fall in value isn't going to lead to a run on them. So no financial contagion.

Hmm, actually looks like a pretty good system there. We've matched those who want to borrow long with those who want to lend long and we've reduced the possibility of a run by reducing the leverage ofthose holding those loans.

So what went wrong? The banks didn't pass on all of those loan pools which they had securitised. They got caught holding the parcel when the music stopped. If all those bonds had indeed gone to pension funds then we wouldn't have the financial system crashing down around our ears. We'd have some pretty annoyed pensioners, yes, but not financial contagion.

So there it is. The cause of our problems was insufficient securitisation.