On 2008-03-22, Ed Huntress wrote:
I think that traits like propensity to spend vs. save, are basic
personality traits and are not really changeable by education.

I actually agree with the remarks that you made. People who borrowed
too much, knew everything and took the risks willingly.

But they didn't "know everything," even if they could follow the legal
obscurantism in the contracts. What they didn't know was the same thing that
everyone else in the US, and in the financial community all around the world
didn't know, which is that, for the first time in history, American house
prices were going to decline on a nationwide business.

I recall doing some refinancing of my own house. Based on some law, I
received very clear summary of the loan terms and interest rates.
There was nothing that was hard to understand.

Also, a maxim that house payments should not be a large part of a
budget, is also quite obvious to anyone, people just choose to ignore
it at their own peril.

Our own house payments are about 10% of our gross income.

It never happened before. If they had asked their banker, or anyone
else who follows it, what the chances were they'd be upside-down on
their mortgage in a year or two or three, making it impossible for
them to flip their house and come out ahead if the mortgage became
too much for them, the bankers would have laughed in their
faces. The experts "knew" that it couldn't happen, because it has
never happened before.

That's exactly why there is a long standing recommendation to limit
mortgage payment to a small fraction of one's income.

So it doesn't make much sense to say these people knew what the
risks were. No one else did, either.

But they were obviously imprudent. As were the lenders.

Looks like there was plenty of investors who bought mortgage loans
containing those crap loans, who did not even bother to think about
their quality.

i