For our friends in the UK, while in the US the government doesn't generally issue housing loans, it did and does guarantee many of them through a variety of programs which did contribute to the crisis.
But the conventional wisdom on what happened in 2008 is becoming fairly settled and the causes are many. The story starts in the 90s, with the repeal of the Glass-Steagall Act that prevented banks from engaging in the investment/securities business.
The next step was the creation of mortgage backed securities. Basically, these were home loans packaged together and sold as a security like a stock. So, you ended up with banks making mortgage loans, and then bundling them and selling them like any other traded security. This divorced the banks from the risk of default in many ways, a trend that was encouraged (but not entirely created) by US govenrment policies intended to increase the percentage of home ownership.
Attempts were made to regulate these new derivative securities in the 90s and they were rejected. So, essentially, the US stock market in the 2000s gradually became a deeper and more complex house of cards all built on the stability of securities that were secured by mortgage loans. And the assumption that it was unlikely the holder of the security would be burned by a default since the value of the underlying property securing the loan, and the security, "would always go up."
Complicating this was the fact that players in the market began buying and selling these securities, and then even betting on their default via credit default swaps.
What was once a simple transaction between a bank and an individual where risk could be fairly evaluated turned into one of the largest portions of Wall Street invovling complex products, risks, etc.
Once the housing market started to tank and the value of the underlying properties began to decline, that was simply like throwing a match on a puddle of gas.
Economy went up like a torch, and only Government intervention saved us from a complete meltdown. Our credit markets were FROZEN -- meaning no one had any credit to lend even to solid risks -- for several weeks in the fall of 2008, which threatened to kill the economy.