In fact, at some point, returns simply dry up and the whole "house of cards" comes crashing down. Those on the bottom–those who got in last–suffer the most. They paid in but got nothing back, while those who "got in" earlier might have walked away wealthy and virtually unscathed, except perhaps for just that: their virtue.

Joseph Stiglitz, professor at Columbia University, likens the current mortgage mayhem to just such a scheme. Stiglitz was chairman of the US Council of Economic Advisers and Cabinet member in the Clinton Administration, as well as s former chief economist of the World Bank, 1997-2000, when he won the Nobel Prize for Economics for his work in information asymmetries.

Borrowers were told not to worry about their mounting debt. With prices going up year after year, the more they borrowed, the more they made. What was true was the more they borrowed, the more the mortgage brokers and the banks made. It was, in a sense, an old-fashioned pyramid scheme: prices simply couldn’t go on rising, especially as the real income of most Americans was actually declining. Low interest rates fed the bubble, but that was not enough: the Chairman of the Fed actually encouraged people to take out variable rate mortgages (where payments would go up as interest rates increased), just when interest rates were at an all-time low. They had only one way to go, and that was up…

What, one has to ask, were they thinking? They were trying to defy the laws of economics: how could individuals pay more on their mortgages than their income? I, and others, repeatedly pointed out that this simply could not go on. A day of reckoning had to come; it has now arrived.

The entire article is well-worth reading. Others agree, such as Blake Heiner, vice president and regional counsel for First American Title Insurance Co. in Utah. He said defrauders found real estate an easy target for easy money. Even President Bush chimed in on the mortgage pyramid:

President Bush pointed the finger at the international bankers, did you all catch that? Excellent explanation by the President of why the hustling, pyramid scheme of the year is now coming down on us. Again, we got those mortgages so easily, not so that the bank could make money directly from us. No, we got that mortgage so easily so that the bank, the savings and loan, the lending institution, could then go to Wall Street and sell that loan and bundle it if you will. December 19, 2007 talk show of Cedric Muhammad as it appeared on FinalCall.com.

Read more at www.thegreatmortgagerevolt.com

I hate it when people say "if something seems too good to be true, it is." I dislike that generalization because for pessimists, lots of things seem too good to be true and yet they are still true. It is also true that it has been possible for a house to double in value in a year. What is not true is that a house can double in value year after year, year in and year out. Those who believe it can and sell others on that fantasy are perpetuating the mortgage fraud pyramid scheme.