Too many people were spending more than they were making and borrowing money from banks to make up the difference. People's debts became so large that in many cases they couldn't repay their debts. And they defaulted on their debts,which caused big losses for banks.
And which caused the banks to decrease their lending a lot. This decreased the amount of money consumers had to buy various goods and services with. Consumer demand for various goods and services decreased a lot as a result. And this made many factories and businesses redundant and unnecessary, which resulted in business bankruptcies and job losses.
Perhaps the reason why the government now wants to borrow and spend is because the private sector is now much more deeply in debt than the government is. And it's not possible for the private sector to borrow and spend anymore, while the government still hasn't maxed out all of its borrowing ability.
Consequently, banks stopped lending money, home prices fell, and firms could not obtain loans.
The government has been spending too much money on welfare and not enough on capital investments.
Firms are laying people off because they are being squeezed so hard.
Since more people are being layed off, fewer people are buying products (thus making the situation worse).
Global Saving Glut