It DID make sense for people to buy houses with nothing down when the inflationary pressures on housing prices exceeded the interest rate of their loans. It made perfect sense right up until the point that it didn't. So much for those ironclad rules of sound personal economics, eh? What works well in one economic situation works badly in others. Take savings for example. Always a good idea? In China, I am informed, the average worker saves 25% of their take-home in regular saving accounts. Those savers are, I am informed actually losing purchasing power due to inflation on every Yuan they save. They should (possibly) be spending more on items which retain their value despite inflation, shouldn't they? Of course that will only work until DEFLATION rears its ugly head, then they're screwed and the savers will be sage. If there was a consistent way to increase wealth wouldn't most of us already be doing that? If every person could follow the same rules of home economics, wouldn't most of us already know exactly what to do? A more affluent man can buy a more expensive item knowing that in the long run, that item actually ends up costing less because it lasts longer or costs less to maintain. A poor man, might understand that, too, but still needs that beater (which costs more to maintain and probably more to run, too) because he needs it to get to work and that beater is all he can afford. So is the better off person buying a hybrid really smarter than the guy driving that beat up older car which gets less milage and which needs more work? Or are the both theoretical people merely maximizing their money in different economies situtations? Every person's economic wisdom is more or less different that every other since each person's finances and needs are entirely unique. We can, and so, often make pronoucements about what is sage economic thinking, which really doesn't apply to everyone's specfic needs in an every changing economic circumstance. It seems to me that there are two tricks to economic solvency and security, neither of which is necessarily doable. The first trick is to understand your needs and to invest you money to maximize your return. Now that would be a hell of a lot easier if your needs never changed, but does that really describe our lives? Well, for some of us for a while it might, but eventually your needs will change and you'd best be prepared to change you economic behaviors to reflect those changes. And the other thing one really needs is a crystal ball to determine how the economy overall is going to change. Who among us has that crystal ball? Certainly I hope that we all understand by now that nobody does...least of all those economists we are all fond of listening to. I used to have a chum who said to me in that economy (this was in the early 90's) he thought the best way people seemed to be making was in one of two ways 1. To bring it with them from the past; 2. Or, to borrow it from the future. Of course the truly superior way of those two is to bring it with you from the past, as in to already had it. But if you're one of those miserables who didn't have the forsight to create or inherit that opportunity, then the second best way was to borrow it from your future (as in mortgaging to buy a home) I think he might have been somewhat sarcastic, but you know....that's exactly how the economy seemed to be working back then. Sadly, I think many of us are now the future that we borrowed from in the past Damn us of the past! Why oh why didn't we give a crap about US of the present? Well now..there's only one thing left for those of us who didn't have the forsight to bring money with us from the past... That's to borrow from US of the future. (Read the bailout?) And if US of the future don't like it? Well screw, them! What have THEY have done for us? Now let's take me, for example. I happen to be the world's leading expert in my own finances so I speak here with enormous authority. The editec of the past was smart enough to wait for the RE crash of the early 90's to buy his home, and he underbought his home based on his then current income. The editec of the distant past was brilliant enough to only borrow about 150% of his annual income, even though that meant buying less than he could borrow. But all the while (during the 90's and 00's) that the market price of RE was exceeding the rate of inflation, editec of the less distant past was looking like a fool for not having borrowed more than he did, as his original investment could have been increasing the equity against his loans in much higher amounts, right? Then about two years ago, when editec's investment had about tripled in market value, editec of the recent past thought about selling his house to recoup his equity and pay off his debt. But he didn't...because editec of the recent past did NOT have that crystal ball to KNOW when the RE crash would happen. So the editec of the present might be losing equity now. Should he sell while there's still equity to recapture? Possibly. But what if the economic environment he lives in changes dramtically again? What if inflation rears it's ugly head and RE begins making his debt seem inconsequential again? Then wouldn't he look foolish with money in the bank paying him back peanuts when inflation could have been increasing his equity in that house? So all editec of the present has to know is this....what will the economy DO in the next few years? That's all. Now tell me, those of you who think that there are ironclad rules for making it in America....what ironclad rule of economics should editec of the present be applying in that case? Take the money and continue hoping for deflation or noflation? (and then what to do with THAT realized capital gain?) OR.... Bite the bullet and hope that inflation rears its ugly head so that his investment begins keeping up with inflation or better? And if editec of the present makes one move or the other, and it doesn't work out as he'd hoped, should editec of the future blame him for NOT knowing what tomorrow's economy would bring? Here's what I think... I think life is a crapshoot. I think that the best laid economies of mice and men oft times go astray. I think we are masters of our destiny when we get it right, and victims of circumstance when we don't. And while we can ALL SEE how our neighbors have screw up (and maybe even ourselves if we're honest) in retrospect, not even a single one of us, -- not even insert your favorite brilliant investor here can say with certainty that what they are doing with their investments TODAY, is the right path for a brighter tomorrow. That's just one man's opinion. One many who truly does know what Sinatra meant when he sang you're riding high in April And seriously shot down in May If that's never happened to you, my congratulations. If it has, my condolenses. But either way, my advice is to understand that the YOU of the PAST was working with uncertainty, either way as is the YOU of the present And regardless of the outcomes that you of the past brought you NOW, tomorrow is another day. Good luck planning accordingly, fellow citizens.