Not everybody fell into the trap, of course; some prudently rented or bought within their means. But most of us were happy to watch our homes appreciate by double digits year after year. Some of us took out home-equity loans based on the unlikely premise that such gains would continue indefinitely. And even if we didn't, we likely spent more and saved less than we should have.
We were silent when neighbors and friends told us of bidding wars and sales contracts that waived safeguards like home inspections. We didn't object when banks offered what seemed like free money. And in the end, it cost millions of families their homes, while taxpayers paid trillions to keep the financial system from collapsing.
If more of us had said what we thought about the wild housing speculation, maybe the bubble could have been prevented. Maybe Congress and regulators would have been more willing to stand up to the lobbyists who pushed them to deregulate housing and mortgage products.
Now we watch in confusion as partisans spin the housing bust to their advantage. The right claims the government overreached; the left heaps scorn on Wall Street.
Regulators and financial institutions are far from innocent. Oversight was clearly lax, and bankers failed to understand the risks. Rising home prices and low default rates early in the boom silenced skeptics and encouraged optimists - from state pension funds to private investors - to keep buying.
Yet if these investors had refused to buy mortgage-backed securities, Wall Street wouldn't have been able to sell them.
The housing crisis will be debated for years, as it should be: Understanding its causes will help us avoid repeating our mistakes. Fraud and impropriety should be punished, but it's more important to fix the system going forward.
One lesson learned is that when it comes to finance and real estate, no man or woman is an island. We're all in this economy together, like it or not. Each household's borrowing, saving, and spending affects others; witness the neighborhoods where foreclosures and falling prices spread like a virus, dragging even prudent homeowners under water.
The best defense against future crises is financial education and literacy. Consumers should understand the consequences of their decisions. Knowing how our interconnected system works will insulate individual households and the overall economy from the next boom and bust.
Cristian deRitis is a director at Moody's Analytics.
