The sub-prime mortgage loan bubble was a disaster waiting to happen.
Maybe if the Fed and Alan Greenspan (Fed Chair from 87-06) had publicly taken it up as an issue, making warnings, and encouraging the bond rating companies to perform actual due diligence on the quality of the bundled bonds based off mortgages ... then the bubble and the mortgage specific fall out from it would not be as bad.
However, the biggest basis for why the 07-08 Financial Crisis was a true existential crisis of the whole Financial system was the use of Over the Counter (OTC) derivates based on the bonds/insurance related to sub prime mortgage loans by most big investment/lending corporations (Merril Lynch, Bear Stearns, Goldman Sachs, etc).
OTCs are unregulated and unreported financial agreements between. All the big Financial players had OTCs with each other pertaining to sub prime mortgage loan based bonds. Company A will pay Company B $X amount if Condition N is met and vice versa if Condition Q is met with regards to the return on the bond or the failure rate % of mortgages within the grouping of mortgages that made up a particular bond, or something else. Then, Company A, feeling so strongly that they would "win" the OTC (aka "bet) with Company B; Company A would then make multiple other OTCs with Companies, C, D, and E on the outcome of that original OTC.
When the bubble on sub prime mortgage loans and the beginning of large number of failures of bonds based on those sub prime loans happened, a ridiculous number of OTCs (such as credit default swaps for anyone who read or watched The Big Short) came due. Suddenly, a crap load of the Big Financial Institutions needed cash infusions in order to pay off their OTC losses ... and banks got cold feet. Why would a Bank want to make a loan, even a short term loan, to say Bear Stearns, when the Bank had A) no idea how many OTCs that Bear Stearns was going to have to pay off; and, B) was Bear Stearns going to be liquid enough to pay back the loan or would it go bankrupt. There were just too many OTCs out there and no one knew how many or had a way to check.
So Banks and Investment Firms and other Financial players began to stop loaning to each other. The entire financial system came close to collapsing because money stopped moving around ... until the Fed basically publicly agreed to back everyone's debt to ensure they stayed out of bankruptcy. At that point I believe Bear Stearns had already gone bankrupt and the Fed/US Gov't did force Merril Lynch to merge with someone else whose balance sheet looked a lot healthier or they'd have let Merril Lynch go bankrupt too.
ALL that said, there is a perfect POD from about 1998 that would have solved the OTC issue. Brooksley Born, the Chair of the Commodity Future Trading Commission, proposed creation of regulation that would have required the centralized registering of OTCs. No regulation as to what could be in an OTC, but simply a clearing house that identified the companies involved in an OTC and the general amount of the OTC.
If that had been in place in 07-08, banks would have most likely continued to make loans to each other because they would have had an actual idea as to how solvent the financial institutions they were making loans to were. The size of the Fed's intervention because of the sub prime mortgage loan bubble burst would have been vastly reduced. And all markets would have performed better ... though I am not saying they all would have performed ok.
Alas, the Investment Firms and the politicians on Capitol Hill that they buy hated Ms. Born's idea. Alan Greenspan hated the idea. And US Secretary of the Treasury, Larry Summers, called Ms Born to yell at her and tell her to pull back the proposed regulations. Within a year, Ms. Born "voluntarily" retired. In 2009, she received the John F Kennedy Profiles in Courage Award for her fruitless efforts to try and fix some of the root problems behind the -07-08 Crash.
So if only the Clinton Administration and the Democratic Congress had had just a little bit of foresight and smarts.