Excerpts from an important editorial from Douglas Rushkoff, which I recommend you read in full:

“The mortgage and credit crisis wasn’t merely predictable; it was predicted. And not by a market bear or conspiracy theorist, but by the people and institutions responsible. The record number of foreclosures, credit defaults, and, now, institutional collapses is not the result of the churn of random market forces, but rather a series of highly lobbied changes to law, highly promoted ideologies of wealth and home ownership, and monetary policies highly biased toward corporate greed.

The banking industry lobbied to reduce the remaining regulations on its lending practices. They won a repeal of the Glass-Steagall Act, a law enacted just after the depression as a way to prevent regular savings banks from doing risky things with depositors’ money. A “Chinese Wall” was put in place between banks and investment brokerages, preventing conflicts of interest and limiting financial institutions’ power over both the lending and borrowing sides of the same transactions. With the repeal of the Act in 1999, banks were now free use their capital to lend money to unworthy borrowers, package those loans, and then underwrite the sale of those loans to other institutions—such as pension funds.

Meanwhile, the credit industry spent over $100 million lobbying to change bankruptcy laws. Although a corporation in bankruptcy still has its debts erased, the regulations surrounding personal bankruptcy were changed so that personal debts stay on the books forever. The logic they used to argue for the change was that debtors are smart, gaming the system to buy beyond their means and then declaring bankruptcy at the last minute.

But the very same creditors knew that just the opposite was true—as evidenced by their sales tactics and marketing campaigns. They turned to a social science known as behavioral finance—the study of the way people consistently act against their own best financial interests, as well as how to exploit these psychological weaknesses when peddling questionable securities and products.

These are proven behaviors with industry-accepted names like “money illusion bias,” “loss aversion theory,” “irrationality bias,” and “time discounting.” People do not borrow opportunistically, but irrationally. As if looking at objects in the distance, they see future payments as smaller than ones in the present—even if they are actually larger. They are more reluctant to lose a small amount of money than gain a larger one—no matter the probability of either in a particular transaction. They do not consider the possibility of any unexpected negative event occurring between the day they purchase something and the day they will ultimately have to pay for it.

Credit card and mortgage promotions are worded to take advantage of these inaccurate perceptions and irrational behaviors. “Zero percent” introductory fees effectively camouflage regular interest rates up to 20 or 30 percent. Lowering minimum payment requirements from the standard 5 percent to 2 or 3 percent of the outstanding balance looks attractive to borrowers. The corresponding increase in interest charges and additional years to pay off the debt will end up costing them more than triple the original balance. It is irrational for them to make purchases and borrow money under these terms, or to prefer them to the original ones. But they do. We do. This behavior is not limited to the trailer park renters of the rural south, but extends to the highly educated, highly leveraged co-op owners of the Northeast.

Combine this with George Bush’s campaign to convince Americans that home ownership is a virtue—itself a revival of a strategy intended to assuage the resentment of veterans returning from World War II—and you end up with a population willing to do almost anything to “get into” a house, and a mortgage lending industry ready to provide the instruments capable of doing it. Once the mortgage rates shifted and homeowners began to default, the people who created the mess were largely safe. Bankers and high-salaried directors received their bonuses for a job well done, and the only people who lost money were the hapless shareholders—people like you and me—who might own some supposedly low-risk bank stocks. And, of course, all the people who were holding mortgages bigger than the total value of their homes.

The fiction is that the money just “vanished.” Financial newspapers and cable TV business channels say that the value of holdings has been “erased” by market downturns, but it hasn’t been erased at all. It’s on the negative side of one balance sheet, and the positive side of someone else’s. While Goldman Sachs was underwriting mortgage-backed securities of dubious value, it was simultaneously selling them short. Take the example of John Paulson, a trader who earned himself $4 billion and his funds another $15 billion in one year by betting against the housing market. For help predicting the extent of the downturn, Paulson hired none other than Alan Greenspan as an advisor to his hedge fund. The Fed Chairman who encouraged the housing bubble even after it began to crash is now cashing in on the very devastation his policies created. The money did not disappear at all. It merely changed hands. People’s homes were just a medium for the redistribution of wealth.

That’s because the biggest industry in America—maybe the only real industry left—is credit itself: money is lent into existence by the central bank, and then lent again to regional banks, savings and loans, and eventually to you and me. Each bank along the way takes its cut; the final borrower is the only one who has to figure out how to pay it back, with interest, by the close of the contract.

The problem is, in order to pay back three or four dollars on every one dollar borrowed, someone else has to lose. Our monetary system is itself a shell game, with losers built into the very rules. The more the credit industry dominates our economy, the more losers there will inevitably be.”