> he's clearly smart enough to have known the risks.
I'd say the opposite: he was too smart for his own good.
He was an Economics major(like me). He was likely taught economic theory based on rational behavior.
During those years, credit card companies sent absurd numbers of 0% offers to everyone over 18. If he didn't borrow money at 0% and reinvest it, that would have been irrational and gone against everything he was being taught in school.
I'm assuming he had a few things working against him:
- Limited knowledge of the world and no first hand experience of a recession.
- Dangerous knowledge from Economics class that teaches you people act rationally, without emotion, according to a simple utility maximizing function.
- Employees in the financial industry who earned their incentives based purely on the amount of money being borrowed in the short term, with no consequences if the debts turned out to be bad.
- Very limited understand of probability and statistics. I've met very few people in my life who have adequate schooling in these subjects.
I had a similar experience(though luckily on a smaller scale) my senior year of college. I was given a $50,000 line of credit from Bank of America, despite the fact that I'd never held more than a summer job or made more than $8,000 in a single year.
If I had walked into my local bank and asked for that kind of loan, my banker would have laughed in my face. But Bank of America gave it to me just by filling out a form and making a phone call.
The system was absurd and many people were screwed. Banks should have known better. They've been around for hundreds of years while myself and many others have been around for about 20.
The lenders should have been smart enough to have known the risks.