The Washington Post reports the Obama administration was aware of widespread irregularities at the banks but chose to allow it to continue in order not to hamper implementation of their plan to give a break to people who had gotten in over their heads and were in default on their mortgages. The program goes by the ungainly name of The House Affordable Modification Plan.
With the banks already understaffed for handling the avalanche of mortgages needing workout or foreclosure, a nearly impossible task was made utterly impossible to be properly processed.
It is another case of making a bad situation worse by interfering with the free market process. What follows is the parties responsible for the problem blame it on the free market system which neither the government nor large segments of the population understand very well.
The dot com bubble and burst was pure free market in both the wealth created that caused the surplus for which the Democrats credit Clinton and in the collapse of the bubble that led to a brief recession. The mortgage crisis, on the other hand was entirely government sponsored, albeit with some help from the private sector, the Federal Reserve and of course the Government National Mortgage Association (GNMA aka Ginnie Mae) and the Federal National Mortgage Association (FNMA aka Fannie Mae).
Government is not the solution to the problem. Government is the problem.