Joe Torben notes that poor homeowners and greedy bankers correctly assessed the market:
Any number of things could have happened, but the three most likely were:1. The bubble will burst after I get out or after I have made enough off it to come out well anyway. This is essentially true for most people getting in before 2005 or so. (“There are no losses”)
2. The bubble will burst while I’m still in. This will force me to leave my house and rent, but if I hadn’t bought, I would have rented anyway. I had a house for a few years, so I’m really better off. For the bankers: a few years of extravagant bonuses and a job loss may be better than no job if I hadn’t started at the bank in the first place. However, the major financial burden will fall on the taxpayers. (“Profits are private, losses are socialized”)
3. The bubble will burst, and those responsible will have to foot the bill. (“Profits and losses are private”)
Doing what most everyone did was correct in scenario 1 and 2, but incorrect in scenario 3. After the fact, we know that scenario 2 was the one that came to pass. Suggesting that this was in some way unexpected seems a bit silly to me. Suggesting that people should have behaved differently, even though we know now that it was in fact in their best interest to act the way they did seems more than a bit silly to me. In fact, that is downright idiotic!