1) Regulatory failure in that effective preventive regulations, dependent upon applicable laws such as the Glass-Steagall Act, were eliminated by acts such as the 1999 passage of the Gramm-Lach-Bliley Act.

2) This allowed holders of money to completely sidestep reserve requirements and push virtual money in forms such as CDSs beyond reasonable expectations of returns.

3) A slowdown in housing sales plus the realization that significant numbers of people would be unable to refinance their mortgages led to the recognition of this overextension.

4) This recognition in turn caused banks, investment agencies, and other monetary agencies to hold a defacto suspension of convertibility resulting in a defacto $1.2Trillion decline in the total money supply.

5) To summarize, the regulatory brakes meant to prevent banks from overextending to the point of credit failure were pitched, whereupon banks overextended to the point of credit failure.