There is no such thing as full employment. Even in the best of times with Capitalism there is a need for a small percentage to be out of work so that they can fill jobs if the need arises. Governments would rather pay for the unemployed than to have a crisis on their hands if there are no bodies available for work. That crisis could provoke inflation if goods are not made and services go unattended. Wages will be forced to go up as unionized labor will demand more because with a shortage of labor they will be able to. And when no higher wages are forthcoming, strikes ensue, causing worsening headaches for the Capitalist class.
Inflation is the big bugaboo for Capitalism. Rising prices and rising interest rates are considered much worse than a slow down or a recession. Of course inflation hurts Capitalists more, but it also does damage on the populace and as the populace can no longer afford to pay certain prices, the reverse starts to happen, recession starts to rear it's head and the Capitalists have to hunker down and cut employment.
Recession on the other hand really only damages the working and the middle classes. The Capitalists will still take their profits, will cut back some but they'll always have money to get them through. But even the working classes who are used to this ebb and flow of work and money can usually bear the brunt. When you don't have much, you don't really have much to lose. Government will step in to find ways to alleviate the pain for the Capitalists: tax cuts & bail-outs where necessary. Governments can also start a war which in the modern era is a driving engine for economic recovery. The middle class though ends up paying for the whole shebang. They have something to lose and they will do whatever it takes to hang on to what they've got.
So in this last crisis where the banks, wall street, insurance companies and other investing type of capitalists created, with the aid of government, a situation where they can provide expensive homes to anyone who wanted them with little or no capital or collateral. They knew that by bundling those mortgages, the majority of which were toxic, along with some good investments (sort of like the man with a wad of $1.00 bills and a $20. bill on either side to hide the $1.00 bills) they could sell those toxic assets and then bet on them failing later. In that sense then they made money on both ends. (if that isn't inside information, than what is?) But even more devious, some of the banks only made money on the administrative fees taken in producing the mortgages, selling the mortgages, shorting the mortgages and then cleaning up later when the short sales came.
Now the question is why would government aid in this situation? And they did from encouraging home sales through political agitation to lax regulations and a belief that ordinary people weren't smart enough to understand anything and that the Wall Street brains would do what was best for the country. That is make money and by doing so create an economy that would be so strong that no other nation couldn't stand up to it.
But the fact is the accepted wisdom and the political agitation indicated that government had to be made small and without teeth so that Capitalism could operate unfettered as in the days of The Gilded Age. But government didn't grow small. It grew bigger so that it could pay the Capitalists their tax breaks, so that it could pay for the deemed necessary defense projects, so that it could give to Wall Street everything it needed to assure hegemony in the wider economic world. But even government was duped. Because the Capitalists didn't show their gratitude by creating jobs in the U.S. It showed their gratitude by destroying good paying jobs here in the U.S. and shifting those jobs overseas where they got even more tax breaks but increased the amount of debt that was piling up on the federal government's books. And who would be forced to pay that debt? The very people who paid for the original tax breaks and defense projects and allowed the moving of jobs. All that money had to come from somewhere and so it came from the coffers filled buy the middle classes and the working classes. Thereby making them pay twice.
Discovering their problem the federal government shifted the cost away from federal coffers and then passed them on to state and local governments by eliminating any and all federal subsidies. Those small governments couldn't possible go to war against the Feds so they were forced to raise taxes in the form of fees and fines, thereby causing the middle and working classes to pay a third time.
But this does not fully answer the question why would government participate in this. Half the time they may just be unwitting participants. For one the electorate is not fully engaged. They are distracted by any number of distractions from serious issues like 9/11 to the endless sex scandals and 24/7 entertainment. another possibility is that government hired second and third tier people while Wall Street hired the cream of the crop. and any time a government official left government he'd end up on Wall Street and among the Capitalists providing the necessary secrets for circumventing government.
But the bigger questions for me which I don't know if it can be reasonably answered is how has the crisis which has been in development since the seventies helped make the U.S. a better place? How have these events created an economic engine that would insure all citizens prosperity? Does it help Capitalism to have as many unemployed as we do now? Or is it that Capitalism is trying to find out how much unemployment the U.S. can live with and still get by and not have a revolt? Full employment traditionally is anywhere from 2 - 4% unemployed. Currently our official rate is above 9% and unofficially it could be as high as 15 - 16%. Will new rules be written that says Officially 9% unemployment is full employment?
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