“Another Katrina.” That’s the phrase some have used in describing the earthquake that has hit the subprime lending universe. No fewer than 32 subprime lenders folded their tents between early 2006 and May of 2007; $1.3 trillion in subprime loans are currently outstanding, and $235 billion of that debt is expected to be reset at rates that could be as high as 12 percent. All of which is likely to translate to a couple of million foreclosures in the US.

But while Katrina’s initial cause (never mind the ways in which malfeasance worsened its effects) was a blameless force of nature, the subprime crisis can plainly be laid at the feet of human greed and naïveté—played out in syndromes that Jack M. Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania and founder of GHR Systems, Inc., a mortgage technology company, calls “payment myopia” and “disaster myopia.”

The two varieties of shortsightedness share a common element, says Guttentag: the faith that housing prices would simply keep heading skyward, allowing equity to increase steadily and reliably, a rising tide that would never recede. Aggressive marketing techniques aimed at unlikely homebuyers coupled with low interest rates in the wake of the dot-com crisis led many to convince themselves it was safe to buy more house than they could afford, or drain the equity out of their property in order to refinance credit card debt—and then run out and accumulate more debt.

The marketing certainly was aggressive, the ploys tempting, as anyone who’s watched any late-night TV can attest. Guttentag offers an example: “Periodically I receive an advertisement from a subprime wholesale lender rep advertising what is available from his firm. (He thinks I am a mortgage broker.) One came to me on April 19, 2007, showing that a borrower with a credit score of 620 [a low rating] could qualify for a loan of $650,000 with a down payment of 10 percent. Checking back in my “Deleted Items” archive, I found a message from the same rep dated June 20, 2006. At that time, he was offering the borrower with a 620 score a loan of $1 million with nothing down.”

As the saying goes, if it sounds too good to be true, it is.

Subprime loans in themselves, say Guttentag and other experts, are not always a bad thing. “Subprime mortgage instruments have traditionally been very useful to certain buyers who might be less traditionally qualified, but can afford them,” says Laurie Della Villa Miller of PRG Realty in New Paltz. “But banks, unfortunately, have given money to people who can’t.”

Steve Carle, vice president of mortgage originations at the Mid Hudson Federal Credit Union, agrees. “They’re now calling these ‘nonprime’ loans, and if it’s done right, it’s reasonable,” he says. “But relaxed qualifications led to a lot of trouble—$100,000 for $500 a month? The focus on ability to repay got lost on both sides.”

The curious thing about financial markets is just how vulnerable they are to perception. For all the talk about another Katrina, Carle points out, foreclosures actually peaked in 2000. “Delinquencies and foreclosures are actually lower now, but all the disaster talk can become a self-fulfilling prophecy,” he says. “People lose faith, others think it’s all right to walk away—it can spiral.”