Regulation is rarely the answer to anything except in cases where you're trying to maintain a level playing field. And, no, I don't believe in laws and/or regulation designed to protect me from myself. What the borrowers who borrowed in the hopes of being able to resell their house and buy another before major rate hikes hit them were doing is well known to the poker playing community. It's called trying to fill an inside straight. Ask any poker player about the wisdom of doing that.

You make the statement: "...if individual homeowners had been a bit more rigorously defending from the depredations of the "system."" [I believe you meant defended, not defending]. The individual homeowner has an excellent defense system. It's called a trash can. That's where all the too-good-to-be-true offers I get end up. It is the individual's responsibility to assess their ability to shoulder what is probably their largest debt obligation, not the state. Of course, you have to have truth in lending laws because you can't make an intelligent decision without adequate knowledge. If you allow yourself to make decisions based on some dopamine soaked portion of your brain instead of that portion of your brain that makes rational, analytical decisions, you're likely to take a shot in the ass.

If you take away the ability to make stupid decisions, you also take away the ability to make smart decisions. It's all part of that freedom thing that vanishes quickly with the onslaught of regulations.

Does Mr. Lenonard keep insisting that banks encouraged borrowers to act irresponsibly(sp). Lenders made programs avaliable, people took them. Congress should do nothing, let the investers loose their shirts or this will happen again. Hillarys bailout proposition will bailout wallstreet not regular people.

It is good to see an understanding of human psychology enter into the discussion. While Mr.Harrison can proudly say that he hasn't fallen for the hype of the predatory lending industry, I think its worth remembering that many people aren't as discerning. Predatory lenders have a financial interest in convincing people to accept refinancing, they directly profit from it. They engage advertising experts, who understand how to manipulate people's viewpoints to get them to think certain ways. The libertarian notion of people as rational actors is a great one on paper, but can be very hard to substantiate based on observation of "how the world works".

It has been shown that people adjust their personal expectations based on those around them. With American commercialism promoting constantly increasing consumption, while inflation adjusted wages are basically stagnant, people look around themselves and are encouraged to find ways to meet their expectations. With predatory lending, I think people get the impression that while it might sound risky, everybody is doing it, so why not me too? The sky couldn't possibly come crashing down on all of us, could it?

One can't easily attach a finanacial figure to the human misery that comes with having your home taken away from you, but we can quantify the overall cost of such a ponzi scheme when the party ends. It looks like the market is in the process of doing so, we'll see how it plays out.

we are in the middle of refinancing our house. Not a dodgy subprime mortgage (I asked) but one funded by the bank. We've been dealing with the same mortgage guy for the past four refinances and he understands us and our financial state so we've been able to get really good advice and loans.

I think that more good loans would be made if banks stuck with "know your customer" policies. Understand what is driving your customers financial decisions.

All I'll say about our four refinances is that 1) don't start a startup. You are not as smart as you think you are and the market is a lot more stubborn, 2) don't start especially if it's a high-tech startup, 3) if you ignore this advice, please make yourself an example to all the children of friends and neighbors as to why you don't want to get involved in high-tech in any way shape or form. I think Andrew could do a good entry on how the same thinking that drives banks to do shaky loans with subprimes also applies to individuals trying to build their own companies.

The RMS Titanic is a self-correcting system that reflected the wisdom of the market. Afterall, why have safety codes when the market properly punished White Star Line for killing a mere 1,500 people?

Not long ago, American employers handled their employees' pensions. Many Americans still believe their employers, somehow, are taking care of them, but it is not so anymore.

Even people who do not contribute to their own 401Ks often misbelieve that their bosses have established pension plans, and that, somehow, they themselves will be taken-care-of, just as their own union-member parents were.

Same with mortgages: Many Americans believe that "financial institutions" have strict regulation, high expertise, and an obligation to decency. Not true anymore.

Finally, many Americans still believe in the idea that if you work hard, you will be okay (at least okay!) with a little wiggle-room for playing golf and drinking and maybe owning a speedboat. But, it no longer is true, even though it used to be true, pretty much, for a short, glorious period in American history (circa 1955 - 1970).

None of these dear Americans who are caught in the mortgage squeeze deserve to lose their homes. They believed in the normal American myths, and they got killed. They just would have kept on renting if they had not been suckered into their crazy mortgages.

When my husband and I decided to move to a different area, we approached a lender with a simple request: fixed rate, no prepayment penalty. With our credit and down payment, this should have been simple, but it wasn't. The first lender tried to talk us into a creative adjustable loan that would have cost us far more than the fixed rate loan. We said no, but I wonder how many people he convinced to switch? People tend to trust authority. They go to a lender and ask "how much house can I afford?", and believe what they are told. They don't understand amortization, much less negative amortization. When we talked to realtors, they tried to convince us to buy a more expensive house than we felt we could afford. We could have qualified for a more expensive house, but we didn't want to risk getting in over our heads. But the temptation was there, and we ended up buying a house that cost a bit more than we wanted to spend. Not more than we could afford (we set a strict upper limit), but definitely more than we planned. I wonder how many people were pushed by lenders and realtors into homes they couldn't afford? I wonder how many people really didn't understand what they were signing when the half inch thick pile of papers was placed under their noses at signing?

We need to change the process. The lenders have credit checks and notaries and (if they're smart) tax returns and pay stubs to verify that the borrower is credit-worthy. But buyers have ntohing. Realtors represent the seller, and buyer's agents are hard to find. We need to change the system so that each buyer works with an advocate for them instead of an agent who benefits from them spending more. We need somebody to tell buyers how much they are going to be spending on the loan, not depend on a lender who gets a commission for pushing creative loans. Somebody to explain to them that a negative termite inspection is not a warranty against problems, and help them find a good inspector, not depend on the seller to disclose all of the negatives. I know... "Buyer Beware". But buyer's don't know what they need to know to safely buy a house, and it seems that nobody is really interested in helping them.

Of course, this isn't going to happen, because too many people are getting rich off of the ignorance of the buyer. Realtors and lenders don't want an advocate steering the buyer through the mess -they want to be able to fleece the buyer. And if we end up with a few broken dreams, well that's just a valuable life lesson for the buyer, right?