I have an outsider's interest in the unfolding credit crisis. I say "outsider" because I do not have a mortgage, am debt-free, own no stocks, and, since I work in academia, am insulated from most of the volatility in the job market. Nevertheless, I have followed the details of the crisis ever since reading about credit default swaps in a California laundromat during the summer of 2007. That is why I would like to save the following quote from Calculated Risk in case I need a quick summary in conversation.
The most significant causes of the credit crisis were innovation in mortgage securitization coupled with almost no regulatory oversight (because of ideologues who opposed oversight and regulation). This led to lax lending standards (liar loans, DAPs, widespread use of Option ARMs as affordability products, etc.) and excessive speculation.
To find out what some of those terms mean, I recommend listening to the following two (slightly out-of-date) stories from This American Life: