Finance is pretty fascinating to me, and the recent financial crisis is an incredible study into how financial systems blow up under stress (if only it were a purely academic study and not a disaster for hundreds of millions of people). Probably the best complete rundown of what happened, and what to do about it, is "Too Big to Save? How to Fix the U.S. Financial System", by Robert Pozen. Nothing I have read has been as complete and interesting as this book, and while I don’t agree with 100% of his proposed policy solutions, I agree with probably 98%. This should be mandatory reading for everybody in Congress.
While I already knew the jist of how it happened (housing bubble, derivate and leverage abuse, ratings agency lies), this book went into great detail about each particular aspect of the problem. From the unscrupulousness of mortgage brokers to the large, institutional structures that helped failure turn into a nightmare domino situation, nothing is left unexamined in the book.
The proposed solutions are reasonable and pretty much what everybody is is saying: limits on leverage, aligning incentives with interests so that there is nothing to be gained by gaming the system (especially important for ratings agencies and mortgage brokers). Some of the proposed solutions are very unique, such as taking cues from the Danish mortgage system, which is quite unlike the U.S. system. And while I think that derivatives as a whole are much more dangerous and need much more regulation, or even outright bans, than Pozen suggests, his suggestions are easy to agree with. He also debunks some proposals that would do no good, such as reinstating Glass-Steagall.
The financial crisis isn’t up everyone’s alley, but if you are even remotely interested in what happened, this is the book you should start with.