The only two causes repeatedly cited, as far as I can tell, are the idea that the rising housing market would continue to generate profits indefinitely and the fact that competition in the market among lenders produced a feedback cycle wherein every risky decision reached by one lending firm had to be appropriated by everyone else in order to remain competitive. The latter is really the problem with the free market, in essence: sometimes the invisible hand slaps you in the face.
The fact is, all indicators seem to point to crashes like this as being 'natural' occurrences in the free market. Issues of feedback in dynamical systems often produce wildly chaotic behavior. There's actually absolutely no reason to assume that a self-organizing system like the free market is stable. Fiscal libertarianism takes stability of the market as an a priori assumption, and derives the fact that radical changes must be produced by external factors from that assumption, when in reality the market appears to be capable of producing its own strange, extreme behaviors.
Why would you conclude that crashes like this are "natural occurrences in the free market" when they happen, again and again, in the absence
of a free market?
The term "free market" does not mean a market that is, by someone's arbitrary standards, under-regulated by government. That would not be a very useful definition, since everyone could have a different idea about how many regulations should be written, and what they should be in the particulars. Rather, a free market is a market in which government's only role is to prohibit violence and fraud, and to enforce lawful contracts. Clearly, the U.S. government, like all governments in existence, does much more than this.
I'll give just one example, which I think is the most pertinent. In a free market, prices are affected by the interplay of supply and demand. Thus, the price to borrow money, the interest rate, is a reflection of the actual pool of savings from which loans can be made. A low interest rate signals a high rate of savings, and a future-oriented time preference among the public, who are foregoing present consumption for future consumption.
In our non-free market, we have government-created central banks that exist for the explicit purpose of planning the economy by fixing interest rates. They almost always keep the interest rate artificially low, sometimes as low as 0%. They do this by purchasing assets on the market with money created out of thin air. When these new funds enter the banking system, the result is that credit becomes cheaper than it would be in a free market, and loans are made that would not have been made absent the central bank manipulations.
The newly created money was not saved by someone who received it in exchange for producing something of value. It will eventually reduce the purchasing power of the monetary unit by causing prices to rise as it works its way through the economic system. But it also results in an artifical economic boom, or "bubble," which is nothing but a cluster of unsound investments that were made possible by the central bank's loose credit policy. The investments are unsound because there is no real savings, and thus no demand, to support them once the inflationary spigot is turned off.
The crash happens when economic reality is reasserted. The central bank slows down its inflation, out of necessity, to avoid runaway inflation, and the unsound nature of the bubble activities is revealed. Scarce resources that were diverted to unviable projects are freed up to be used for other, more economical purposes. Businesses go under. In reality, they were walking dead for a long time, kept alive by artificially cheap credit.
When governments try to prevent this correction, by propping up failed businesses, bailing out banks, fixing prices, etc., they turn the crash into a long, drawn out depression. This is what happened in the Great Depression, and it is happening now. Houses were over-valued, but the U.S. government, in cahoots with other governments, is trying to prevent prices from falling. They won't succeed, and the longer they keep at it, the more painful will be the eventual correction.
In short, it is not the market that created the instability. The problem stems from government control over money and banking. That is the root cause
before you get to any other considerations, the CRA, the regulatory regime, etc. I could get into the ways in which a free market in money and banking would make this kind of inflationary bubble impossible, but I've written too long already. I hope it's been clear enough to understand (it's not the most accessible subject).
P.S. Hi! (First post.)