The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.
See also: 1999-2008.
So what are we going to do about it? Who knows? The Treasury Secretary wants to administer a $700 billion bailout. The bidding on Capitol Hill has already begun. Partisans on both sides are blaming the other for causing the mess.
The only thing I am certain of this: the people who are taking steps to fix the problem aren't likely to fix anything, because they all had a hand in it. I sure did: I worked for Bank of America for 3 years during the height of the boom and B of A was involved in what's happened (and is bidding to benefit from the wreckage). B of A had better standards than a lot of lenders, but I was privy to financial information for our line of business and there were some bad loans in our portfolio, loans that would never have been made in a more normal time. We all knew it, deep down, but no one wanted the party to end.
You can't count on Congress to fix the problem -- Barney Frank, Christopher Dodd and yes, Barack Obama were wholly-owned subsidiaries of Fannie Mae and Freddie Mac. You can't count on the Fed: Alan Greenspan and Ben Bernake would occasionally make cryptic comments about things, but they didn't stand up to say that madness was afoot. And the Bush administration didn't bother, either.
We all own this. It won't do to pretend otherwise.