2/ Brokers then purchased these sketchy mortgages and packaged them with standard 30-yr mortgages into "Collateralized Debt Obligations" & sold them as investment instruments that were ludicrously overrated by debt-rating agencies (S&P, Moody's, etc.)
Yep, and when the mortgage defaults started to happen the investors (AIG being the big one if I recall) didn't have the money to cover. And we weren't smart enough to let them fail.
The bailout deals had begun even before the 2008 election, and Obama went along with them.