"These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.(As an aside, I am aware of some discussion on the community forums at mises.org of some version of my article.)
When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.
Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.
In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically." -- Ron Paul, 23 September 2008
Barack Obama has also already gone into more technical detail, on another topic entirely, than I expect from presidental candidates. Last year at Google, Eric Schmidt asked him for "the most efficient way to sort a million 32-bit integers." Obama said, "The Bubble Sort would be the wrong way to go."