It was predictable that we would have trouble, because some people were living off of money they took out of their houses in refinances.
People living within their means would certainly have been upset at losing so much money in the market (i know I was), but they wouldn’t have had to call about a refinance, if they were living within their means already.
I could still refinance my house if I had to, because I didn’t refinance and take out money when it ran up in value, so I still have significant equity even though my house dropped by 40% like everybody else’s house.
And frankly, I don’t think the 401Ks would have fallen as much as fast if people hadn’t been spooked by the actions of the government.
I think you're a little too quick to judge.
For example, there are many people on fixed incomes who are living within their means and can continue to pay their mortgages. Yet with their wealth disappearing through the stock market crash, of course it's only prudent for them to try to reduce current expenditures as much as possible, including through exploring options to reduce their monthly mortgage payment through refinancing.
Also some people living within their means nevertheless "had" to buy a house within the last five years, and even if they exercised caution in both the purchase price and the downpayment---in fact, if they actually did what used to be the wise thing and put down 20%, they really are screwed, forever---through no dereliction on their part, they now cannot refinance their home. This is a financial restraint they have never had before, primarily because they did in fact live within their means and make wise choices.
Now, for the first time, they do not have the financial agility their wise choices had always afforded them previously. That doesn't feel good. They will stop spending.
Since mortgage rates are at 4.75%, there's no reason why you shouldn't refinance if it would save you money now and in the long-run. That shouldn't be interpreted by anyone as you "not being able to live within your means." Go for it.
P.S. I simply disagree that this was the cause of the problem or the eventual contraction in consumer spending.
This all started in the mortgage world and it's there that it will have to be solved.
It's not the fact that people were spending money they took out of their houses that predicted trouble, it was the fact that, for all practical purposes, houses stopped being bought and sold for reasons that had nothing to do with consumer spending.