Irresponsible loans and low interest rates are not mutually exclusive. Both increase the number of people buying homes. Supply being fixed, demand being high, home prices increased. Interest rates being low, combined with high demand, resulted in a flood of new building, which created high paying construction jobs. High home prices and low interest rates increased the rate of cash-out refi's. That extra cash was spend, fueling the economy. With home prices increasing, equity was generated very quickly, so low / no down payment loans appear less risky (irresponsible loans?). The problem occured when supply met demand. Homes were being built, prices were reduced so they would sell. People couldn't pay when variable loans increased, and they couldn't refi. People with good paying construction jobs were out of work, and there was nothing that paid enough to keep them from defaulting on their homes. People with liar loans started to default. Supply exceeded demand, and the already low interest rates couldn't be lowered enough to slow the fall. Are you kidding? Who bought up all the liar loans? The banks didn't keep them, that would be irresponsible.