In a way, I don't think we drifted far from the topic. Although the particulars of Rick's particular loan may not be important (to the thread, I know they are to him), they are a pretty good exemplar of "how the crisis will develop." It starts when people feel that they will not be held accountable for their actions. And I use the term "people" deliberately. There are lots of players who are looking to avoid responsibility - the loan officers, the loan seekers, the packagers, the investors, etc. - by creating bad paper and passing it around, they were essentially playing "hot potato" with them, hoping that when they defaulted they would not be the ones holding them. Now, as the market shrinks back from the gross misconduct entailed, everyone is tightening back up, restricting the ability of even qualified borrowers to find reasonable loan terms. It could, eventually, settle out, but it is another example of why "markets" should not police themselves - because they don't. There isn't any real incentive to do so.

A well reasoned argument is like a diamond: impervious to corruption and crystal clear - and infinitely rarer.

Here, as elsewhere, people are outraged at what feels like a rigged game -- an economy that won't respond, a democracy that won't listen, and a financial sector that holds all the cards. - Robert Reich