How The 2008 Recession Started

The first thing we need to know are the four major factors.

Deregulation by the goverment

Deregulation is the reduction or elimination of government power in a particular industry, usually enacted to create more competition within the industry. Over the years, the struggle between proponents of regulation and proponents of no government intervention have shifted market conditions. Finance has historically been one of the most heavily scrutinized industries in the United States.

You can read more about this subject at Investopedia.

SEC Changed Rules Allowing Investment Banks To Invest More

Legend has it that a 2004 change to a rule governing capital adequacy at Wall Street firms allowed broker-dealers to double their leverage, making them highly fragile and likely to fail in a crisis.

People's Debt/Income Ratios Increased

A debt income ratio (often abbreviated as DTI) is the percentage of a consumer's monthly gross income that goes toward paying debts. (Speaking precisely, DTIs often cover more than just debts; they can include principal, taxes, fees, and insurance premiums as well. Nevertheless, the term is a set phrase that serves as a convenient, well-understood shorthand.)

FED Maintained A Low Prime Interest Rate

The central bank typically sets a specific target for its federal funds rate instead of a range. The rate is currently at 1.25%. During the 2008 recession the FED's cut it down to 0.00% to 0.25%.

"Lowering rates to this level is purely a psychological move made to send the message that the Fed is committed to righting the sinking economic ship," said Rich Yamarone, director of economic research at Argus Research.

federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans.

How We Could Have Fixed It

I personally believe that the banks caused the "Great Recession" by loaning out billions of dollars to people that were ill-equiped to repay them. Banks Gave out home loans very easily right before the recession due to the high marketability of homes at the time, since house prices were on the rise. I also believe that there were four major threats to the economy, them being:

Thankfully from what I've seen only the first two happened, these were the lesser of the evils from above.
I think the only true way to crawl our way out of this recession would be for the goverment and the Federal Reserve Board to give out short-term loans and housing loans as well, in the long run the goverment will actually make money off of this via interest which it could use to investment in the betterment of the economy.

George Bush Bailout Bill and Obama's Stimulus Act link