A few sour apples? Horseshit. If you look at spread of the current financial implosion, you see that a great number were on the bandwagon. Those that perhaps were not, knew about it but did NOTHING to stop it. I maintain almost EVERYBODY was involved, from the people selling money market to major bank managers.
Yep, none of those guys ever really did due-diligence on the assets they hold, but it is difficult to check out the source of return. That is because it was hidden uncontrollably deep.
You should observe the way the market collapsed. Banks went heywire immediately. This is primarily because some idiot embedded mortgage associated asset in massive amount of short-term notes in a form known as Asset Backed Commercial Paper. What banks do when in financial crash is to move their asset from stocks to bonds, more specifically, government bonds. Then they go for even shorter term (less than 1 yr notes like treasury notes).
Most of the time, short term market is not contaminated with bad assets. But some idiot contaminated this domain leaving banks with nowhere to go. Probably a handful of people did this. But you are right, people on the bandwagon went for it without thinking too much.
Note also, subprime loans are affected but not much in other loans. But market went crazy. This is also the result of bandwagon thing. People never really checked the assets they hold. They just heard rumors and act on it without really thinking. They all try to get rid of mortgage assets whatever they were.
I think it's a behavior of just people trying to make a living and absense of common sense. But then it is rather difficult to assertain problems as they happen especially we the consumers demand returns on our investment putting a lot of pressure on the managers. Although it is wrong to do, it is understandable why people don't ask question as long as they get the returns. They don't wanna spend 24-7 reading every possible documents and analyzing every possible scenarios. They want to get home for dinner and bed much like you and me. (You would never believe how long it takes to write a financial statement for a respectably sized company.) Note also, consumers never ever call managers up to check. Only time we get called is when bad rumor is going around; and they come in with a baseball bat. ... I think if you care that much you ought to check your accounts or plans once in awhile.
Usually checks and balances cover the human factor, but sometimes they don't work. This is where you come in. ... Remember. When it sounds too good to be true, it is. You can't expect a person to build you a house that absolutely fits your needs, unless you oversee him/her in doing it, right? Same thing, you better oversee your own assets yourself. After all it is your pennies, right?
Nonetheless, it is very true that the industry acted irresponsibly and caused losses that are unrecoverable. I mean sub-prime mortgage assets treated like regular assets. That is totally unacceptable. Also, we assumed that land prices will only go up. That is absolutely wrong and unbelievable, but it did happen. (It happens way too often) And, ... (Wait a sec. Get ready to get pi$$ed,) I hear testimonies of people saying loan sales people endorsing this absolutely wrong fact as they borrowed.
(Lastly, for the financially astute people, ABCP is totally unacceptable because underlying assets are long term while the ABCP itself is less than 1 year short term. ... But people got lead away by the fact that it did make money a while back.)
I suppose I am tring to plead that many people are "unwittingly" involved; but then definitely guilty of regulation violations (or absent thereof). ... What a heck am I pleading for then, huh?