http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_ActThe Gramm Leach Bliley Act of 1999 which was very bipartisan. It was the final repeal of Glass Steagall and allowed for banks, inventments, and insurance entities to merge making them too big to fail. Also included was the quota to sell to minorities to stop red lining or the institutions lost their rights to merge and use Fannie and Freddie. This led to many sub prime mortgages which were bundled, sold as investments, and insured mostly through Freddie Mac and Fannie Mae which is how the lenders recouped their capital. They also kept making housing appraisals higher and higher until finally they were too expensive and also the higher rates kicked in leading to those with sub prime mortgages to either lose their homes or to refinance with a similar loan, sometimes 3 times. That is when it all came to a screeching halt.
With nobody buying the houses and no toxic bundled mortgages to sell anymore, there was no way to recoup their capital so they went belly up. Likely one of these huge institutions tried to sell everthing off all at once which led to the stock market crash. This was all predicted before Clinton signed the bill.
There are other factors such as fraud, lack of making people prove they could repay the loan, people who didn't understand their loans, etc, etc. Clinton denies that is what happened but it seems pretty clear but there were other factors. The fed should have been regulating the whole thing but failed to do so. Also false reporting on the financials was a factor. There should be a string of prosecutions related to it but instead the SEC is suing them.
The answer above is right. Derivatives related to the housing is why there was more money lost than exists.