I am one of the people who benefited from subprime lending, and without it, my whole life would have been different. I was self employed in 1999 when I bought a house in Brooklyn, and I paid an extra percentage point on my mortgage because I couldn't "prove" my income.

This "no doc" mortgage was virtually no risk to the bank, because the amount of equity in the house was enough that if they foreclosed on day 1, they wouldn't have lost money. Meanwhile, I was able to improve my situation by buying an income producing property and maintaining it and renovating it. And this changed the trajectory of my life by fascilitating stability in housing costs and a long term investment.

In decades previous this would have been impossible, it was traditionally the case that only people with W2 income could get a mortgage, and I think the invention of "no doc" and "stated income" mortgages was a huge step forward in the United States, opening up important options for people who had been marginalized simply by choosing not to work for an existing company.

I am tired of the ignorant rhetoric surrounding the housing bubble. Subprime mortgages are not a priori bad. Neither are "No doc" and "stated income" mortgages. The function of a subprime mortgage is a fairly simple algorithm: because there is a greater risk in loaning to someone who doesn't have sufficient W2 income, the borrower pays a higher interest rate to offset the higher foreclosure rates.

The reason the bubble formed was because housing prices were rising, largely due to lowered interest rates which were in part a reaction by the fed to the post 9/11 recession. As a result of rising housing prices, foreclosures hit historic lows, causing the illusion that subprime mortgages were no riskier than normal mortgages. This meant that investing in them was free money, for a time. The nature of this temporary scenario was obfuscated by creative financial professionals who packaged subprime mortgages in to securities. They claimed they had used special techniques to make "A rated" securities out of packages of high risk loans, and the returns seemed to bear that out. But it was an illusion caused by low default rates ... no one defaulted on their mortgages because they could always sell for more or refinance for more money ... as long as housing prices continued to rise. Once housing prices stopped rising, the packages turned out to be exactly what any rational person would have expected: a bunch of high risk loans with higher interest rates hopefully offsetting the risk. Unfortunately, a bunch of greedy people had allowed themselves to ignore the bubble nature of the whole thing and a number of financial institutions faced bankruptcy. That's all, and it fundamentally has nothing to do with whether higher risk mortgages are a bad thing, and everything to do with bubbles, and why bubbles form. I think Kenneth Galbraith's "A Short History of Financial Euphoria" sums up the nature of bubbles well: someone reinvents leveraged investing thinking it is a new thing, people go crazy ... it is always exactly the same.

And yes, you could conclude from this that Osama Bin Laden caused the housing bubble. But I don't want to give that guy too much credit.

I really think it is a horrible shame that we have reverted to the old way of evaluating mortgages, I don't think a younger version of me has the options I had. And that is too bad.