I’m not sure if I am misunderstanding your statement. While I agree that some of the products on offer were complex, any reasonable person should have an idea of how high a monthly payment they can service. In fact, I would suggest that most buyers realised this but took the loan out anyway because, “well the banks giving away money”. See page 3 (Clarence Nathan)http://thislife.org/extras/radio/355_transcript.pdf for an example.

The only exception is the case where the mortgage brokers were selling something they knew was a bad product and I have some sympathy for those people who effectively got “duped”. Still, it’s your money and you make the decisions, regardless of external influences…

No, not really. The basic theory behind a lot of these CDOs was that if you bundle together enough bad debt, at least the first x percentage of payments due will be made each month. (If 90% of the payments aren’t made, but you are owed the first 10% that comes in, you suffer no loss at all.) Therefore, if you buy the rights to that first percentage, you are supposed to be fairly safe, even though the underlying assets are not much good at all. This was the fig leaf for the rating agencies (who were being paid to rate the securities by the companies who issued them, by the way) to let them issue investment-grade ratings to these “tranches” of securities.

To put it briefly, it was always known that this debt was no good. It was originated by people who knew the defaults would be someone else’s problem and repackaged and sold by people who knew the defaults would be someone else’s problem and bought by people who thought (incorrectly) that they could manipulate the bad debt to squeeze some “safety” out of it.