Causes
1. Fundamental asymetries of information in the financial markets (read some of J. Stiglitz' stuff about it). Problems with financial products such as risk and liquidity are factored into the price, so it doesnt matter if there are problems as long as investors know there are problems. investors had no idea
2. Lack of regulation (not deregulation because it wasnt regulated in the first place) of the SHADOW BANKING INDUSTRY not normal banking industry. It was effectively a multi-trillion dollar invisible bank run which impacted institutional investors and NOT so much mum and dad investors, like a share price crash would. (read some Paul Krugman stuff)
3. Bad macroeconomic policy. interest rates were kept low by Alan Greenspan after 2001 crash following a policy of "benign neglect", and too much aggregate demand via debt expansion
The crisis would not be as bad if:
1. Sovereign debt levels in US, Europe and particularly Japan were lower
2. Financial markets weren't as globalised - i.e. foreigners didnt buy as many bad financial products.
3. Confidence was better - lack of confidence led to money being pulled out of productive investments such as corporate bonds, equities (where it was needed), and put into safe havens such as AAA gov bonds. this led to higher corporate borrowing rates (lower investment) and lower government rates (should have meant more gov expenditure, but didnt because of mistimed fiscal policy), and therefore higher overall interest rates, therefore an even worse downturn
i personally believe that this crisis was not caused by deregulation - if it was caused by the repeal of the glass-steagal act (the main deregulation) then commercial banks would have failed. commercial banks didnt fail, investment banks failed and the shadow banking industry failed. the situation deteriorated because when the investment banks and shadow 'banks' failed, they couldn't recieve rescue funding. rescue funding was given to commercial banks - who didnt really need it, while the invisible banks who REALLY needed it failed.
the GFC could have been a small blip if there was good enough harm minimisation (more effective bailouts, and more fiscal stimulus). prevention after the fact is too late, prevention for next time should only be taken when banks are again in good health and everything is stable, not while the recession is happening. deficit reduction only worked with clinton (J.Stiglitz: The roaring nineties)