The Big Short: Inside the Doomsday Machine by Michael Lewis was a big disappointment. Lewis discusses the symptoms and the fallout of the housing crisis. However, like many others, he completely fails at addressing the real disease and the genesis of the problem: poor government policy. If one would like a real look inside the "doomsday machine", Thomas Sowell's The Housing Boom and Bust provides further details on the real culprits and their policies, legislation, and accompanying regulation that led to perverse incentives, moral hazard, and outright foolishness on the part of the federal government.
As shown on page 11 of the CBO report: Fannie Mae, Freddie Mac, and the Federal Role in the Mortgage Market; Fannie Mae, Freddie Mac, and Ginnie Mae hold over half of the mortgage debt outstanding. This is due to government policy that, in the effort to "increase home ownership", compelled the three institutions to buy mortgages on the secondary market at a skewed price. If Congress sets up entities to buy (subsidize) something in the secondary market; albeit mortgages, automobiles, ethanol, or solar energy, then the end result will be an influx of each from mortgage originators, auto dealers, corn farmers, and "clean energy producers" respectively. This influx is not due to a market demand acting upon what is economical, but a distorted and perverse incentive of artificially inflated values of the afformentioned goods. Also revealed on page 7 of the report, the triumvirate (Fannie, Freddie, Ginnie) dominated the Mortgage Backed Securities (MBS) issuance market. Yet somehow we are supposed to believe it was the (not-so-)free market that caused a housing catastrophe.