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"Well, if one wants to be charitable, they can say it was loose lending policies that led up to this. "

I'd say it was financially uneducated consumers who were impatient to have it all now that caused this. One thing that our school systems lack is financial education. Kids should be taught about the magic that is interest. The power of financial discipline. As a parent, I've tried to give that to my kids.
ARMs are evil for your primary dwelling. Less than 10% down is asking for a financial bloody nose. Paying over 40% of your income for your mortgage is just plan stupid. But people are doing all of that and more. I don't blame the lenders on this one. It's the uneducated consumers. If you don't understand what you're signing up for, you probably shouldn't sign up.

ARMs are evil for your primary dwelling. Less than 10% down is asking for a financial bloody nose. Paying over 40% of your income for your mortgage is just plan stupid. But people are doing all of that and more. I don't blame the lenders on this one. It's the uneducated consumers. If you don't understand what you're signing up for, you probably shouldn't sign up.

I'm going to add a huge "it depends" to all of your points.

ARMS? Some are OK, but it depends on a few things. If you have enough equity and can easily afford the higher payment when the rate adjusts, go for it. But for most people, you're correct.

Zero down? Again, depends. If you do zero down so as to keep cash for other purposes, and the payment is easily affordable (<20% of your income or so,) why not? Buying a house with zero down because you HAVE nothing to put down, that's risky. But doing it for other purposes, can be just fine. Perhaps adding a caveat that you must have cash reserves of a certain amount for a zero-down loan makes sense.

The over 40% thing? In some markets, that's what a starter home is! In places where average incomes are 50 grand and the average house is 400k, what other choice is there? Of course your points do illustrate one reason the prices are so high to begin with.

Your assessment is right on. It's going to hit here in Utah at some time and the LDS church is so concerned that they've been having talks about it to their members at Sunday services. There's several new suburbs right by me where couples in their 20s have $250-350,000 homes(equivalent to about $600,000 on the coasts), only one wage earner, new SUV, new mini-van, huge flat panel tvs, expensive furntiture, etc... . They're using credit cards to make payments on other credit cards, eat out six times a week, and generally(from talking to some of them) are literally swimming in debt. All of this has to come crashing down at some time, but they all want it now, not later.

What happened to financial discipline and economics in school?