I gave him my money and now he won't give it back!

Banks, who are foreclosing left and right, have started complaining that they shouldn't have to stop doing it just because they might not have the right paperwork, or might not have the legal right to foreclose on that house, or (in at least one case) because the homeowner does not in fact even have a mortgage*. Why? Well, because these people borrowed money and lapsed on their payments!

So here's a hypothetical:

Say I have a cousin. His life is kind of a mess - he's marginally employed in a shitty retail job, he spends most of his paycheck on beer. To make ends meet he's got nine credit cards, all with significant outstanding balances. He's lost some money in the past gambling and buying lottery tickets. Basically, he's kind of a loser, and clearly has no idea how to manage his money.

This cousin comes to me one day and asks if he can borrow a thousand dollars. I've got a good job and can pay my bills and still tuck a bit away each month in savings. But my cousin comes to me and says he found a great deal on this used car - it runs great, really, it's a fantastic buy - and he needs me to lend him a thousand bucks. I say: Sure, but you've got to repay this, two hundred bucks a month for five months. Great, he says, and he takes the check and off he goes. He buys his new car. A few months later he loses his job because he came in late one too many times and got fired, so no more paychecks, so he stops repaying me.

Who's at fault here?

Obviously: yeah, the cousin's a loser and needs to get his act together. Dude should stop drinking and smoking, concentrate on holding down a steady job and maybe spend his booze-and-smokes money on some classes at the community college instead, to pick up some useful skills. He knew he couldn't repay me, not at the rate that I wanted, and so he shouldn't have taken the loan on those terms. But I'm the real idiot here, for giving away my money to someone who obviously did not have the means to repay it. It's my money. If I want to give it away - hand my cousin a check as a gift, rather than a loan - I'm free to do so. But if I want to loan someone my money, then it's up to me to make some effort to do so only to those who at least look like they'll be able to repay it. If someone's not earning much and is already up to their eyeballs in debt and you know this, but you loan them money anyway - well, you're kind of a moron.

So do the homeowners who tried to live beyond their means and buy houses they couldn't afford bear some culpability in our current economic disaster? Absolutely. You're responsible for living within your means, and if you spend more than you have you have to deal with the consequences.

But ultimately, it's the banks who decide who they give their money to. They, too, made a bad call, and my sympathy for them is...limited. If you loan someone a bunch of money without a reasonable belief that they can and will repay it, you're a moron.

And there's more to it too: some people were actively and intentionally misled about the terms of their mortgage. Some people I'm sure could afford their homes before the economy collapsed and they lost their jobs. Some people could afford their homes before they got sick and couldn't afford their medical bills, or had to take reduced hours at work to care for a relative.

So are individual consumers at fault? Sure, in plenty of situations. They took out a loan they couldn't repay; now there are consequences. But are the banks blameless victims in this? Sure, if by "blameless victims" you mean "suffering the consequences of a situation they created themselves".

*For an excellent, brief explanation, read this: http://www.observer.com/2010/wall-street/foreclosure-fiasco-and-wall-streets-shrug