if I make a promise to pay, I pay. To do otherwise is wrong.
If you made a seemingly legitimate investment only to learn you were the last investor in a Ponzi scheme would you keep paying earlier investors after it became clear no one new was joining the scheme?
Put differently, since about 1993 households supplemented income with debt leading to the a wealth illusion in the US. The wealth illusion being the perception that household income was growing much faster than it really was due to increases in credit and mortgage debt. This false wealth fueled consumption and made the overall economy look stronger than reality.
One effect of this was the appreciation of housing prices. Many who bought housing near market peaks in 2007 - 2008 were unwittingly buying into the top of a debt fueled national Ponzi scheme about to go bust. Those last purchasers were disproportionately left holding the bag while earlier home buyers either maintained profits or were left comparatively unscathed.
This consumer debt event was not a normal market pricing phenomenon, nor was it part of a normal debt cycle. Instead it was driven by a confluence of events including lax central banking policies, misguided government policies, and inappropriate financial incentives for debt originators. The result was a credit fueled prosperity cycle that was sure to end poorly. Towards the end the key players became mortgage originators, MBS resellers, and MBS purchasers whose inability to properly access the risk and misaligned financial incentives produces heaps of bad debt while driving housing prices to their final highs.
So, we collectively experienced an undeserved period of prosperity that retrospectively was certain to end poorly. At the time this was not well understood (or at least acknowledged) by the most sophisticated agents (central banks, mortgage banks, etc.) - and certainly not by the average home buyer. However, one aspect of this bubble was certain - whoever entered last would be hurt the most.
Let me state -
I'm highly sympathetic to the personal responsibility argument. That said, I believe there is more complexity to this situation - namely that there is some truth to the reasoning that peak price home buyers were defrauded by a systematic failure not of their making yet are expected to disproportionately experience the pain.
An obvious criticism would be they knew they were purchasing a risk asset. Yes, they did - however no reasonable estimate of risk available in 2007 would have suggested 50% declines were possible nor did the so called sophisticated market participants properly price this risk. Indeed, few saw this coming until late in the 9th inning.
That will end up being a huge number of potential homebuyers and will keep housing prices lower. Not saying you are wrong, but there is a huge machine set up to sell houses and potential deadbeats are part of the machine.
