I spent Sunday in a self-congratulatory mood, as I reveled in the idiocy of other people. Smugness feels good.
If you were designing a stadium in Minneapolis, would you make sure it could withstand a 17-inch snowfall? Of course you would. Heavy snowfalls in Minneapolis are predictable. So why did the Metrodome's architects design an inflatable dome that would collapse after a big snowfall? A couple of years ago, Reliant Stadium in downtown Houston was damaged in a Category 2 hurricane, forcing the rescheduling of football and baseball games. Why would they build a stadium in Houston that can't withstand a Category 2 hurricane?
Similarly, our regulators and their corporate overlords designed a mortgage financing system that couldn't withstand a drop in house prices. They acted like house prices would never fall, even though there was a nationwide collapse in home values in the 1930s, and regional meltdowns in the last 20 years in California, Texas and Florida.
What are the implications of this human frailty? We've got to set up rules during times of caution -- like, right now -- and follow the rules in times of euphoria. My suggestion: Link minimum down payments to house price growth, so that when house prices are rising fast, bigger down payments are required. Such a rule won't be adopted, because we're an obtuse and greedy species, but it's worth a thought experiment.
Meantime, get smart by consulting Bankrate.com's mortgage calculators.