They had invented mortgage products designed to circumvent the banking wisdom of the ages, and they had peddled these mortgages with a willful disregard, bordering on fraud, for whether their customers could repay them. They had bullied Congress and their regulators into ignoring all this, or into accepting their methods and their models. Clever as they were, the capitalists had forgotten one thing. Capitalism requires capital.
From The End of Wall Street by Roger Lowenstein
There is a distinct difference between a liquidity problem and a capital problem. Wall Street had leveraged themselves to such a high level that any setback would cause a sharp liquidity problem; and there will always be setbacks. Delusional mathematical models convinced them otherwise.
This lack of capital was not limited to Wall Street; it occupied every home with no down payment, subject to variable mortgage rates, and absent of any basic prudent lending standards.
This recklessness was tolerated because it served the political aims of DC, the insatiable appetites of Wall Street, and the naïve home buyer who thought he was smarter and richer than he really was.