I'd argue the biggest cause of the MBS was lack of understanding of risk on the part of those buying the securities, not the risk itself. Markets can tolerate

I'd argue the biggest cause of the MBS was lack of understanding of risk on the part of those buying the securities, not the risk itself. Markets can tolerate risk when it is priced in appropriately. >Trusting someone not to destroy something while the use it isn't the same as trusting them to pay you the full value of it upfront. You don't trust them to pay you. If you did, the house wouldn't have a lien on it. You may mostly kind of trust they won't burn it down or destroy it, so you might trust you'll say get 80% of your money back and thus require a 20% down payment or something. >But they are and it works just fine. If the market can find a way to price in risk for someone renting a 700k house which entails them usually paying at least interest on the value of house + property tax + maintenance (this is all indirect payment, but basically what a landlord needs to charge to at least break even), the market can find a way to price in risk for that same person buying a 100k house.