You do realize that the federal reserve is also a problem because they're the ones who have been printing these trillions of dollars and passing them off to god knows where without our knowledge and against our will? You also have a case of the price fixing interest rates going on. I don't think CDSs are an 'actual' explanation of the credit bubble as it is only a small part since the situation is so ridiculous. What I think is partially responsible is that we've dug ourselves so deep with this whole idea of debt being a currency that America at least came to rely on Goldman Sachs and Lehman Brothers so they're deemed as 'banks and financial institutions too big to fail'. I do agree that CDSs are part of the problem but I'm sure if you know about the economy you'll know that this bubble has been created due to a whole complex web of lies that we need to unravel before armageddon hits.
Rather than identifying exactly "how", I think it's more of a general problem of greed and lack of oversight. 1. Excessive leverage = low/none reserves to handle defaults. 2. Low interest rates encourages excessive borrowing/leverage. 3. Elimination of "qualifications" to get a mortgage loan. 4. Regulators(?) not saying, "Hey, that's very risky and is not allowed". You know, like liar loans and layers of derivatives where nobody posted reserves for possible obligations. If the system lets some run amok plus some assume they're too big to fail and will be necessarily bailed out.... well, many will find a way to be stupidly excessive.