Interesting post, fully agreeing with you viewpoint, however, I have this to add. There is a subset of people, particularly in the US, that are just plain dumb when it comes to some things. They are followers, and they will blindly follow whoever it is that is preaching to them. Mortgage broker tells them, you can afford this, ok they say, sign me up. Credit card company tells them, you have this much to spend, they say, ok, lets do that... etc.
It's really a compound problem. First, it's lack of personal responsibility, but secondly it's a problem of predatory advertising. Sure, companies are out there to make a profit, and they wholeheartedly should, I'd be the fist to defend capitalism, but seriously, some practises are just outright illegal. I didn't grow up in this country, I came here when I was 18. One of the first things I learned was that if you ever want to buy something that costs more than you can reasonably save for completely (i.e. a house), you need to establish credit. Ok, that makes some sense, so I got a credit card. When I got it, I had not idea how interest rates for it worked, but I also always paid it in full. That's because I grew up in Germany, where there is next to no post-paid credit, they use cards, but primarily as either debit cards, or as credit cards that are linked to your back account and get automatically paid at the end of each month with your account funds. Your limit is whatever you have in your account. There is no credit score, but there is an agency that tracks where you work, what you earn, and what your debt service payments are. Your creditworthiness is determined by what comes in and what goes out. This prevents people with no income or very low income from racking up debt they can't pay. It also protects banks from third parties trying to sell them crappy loan packages.
The other thing that blew me away in the US is that there is no national, or even regional programs that encourage saving for home-ownership. In Germany we have what would literally be translated as "build-savings-contract". The "build" part is misleading, you can use it on existing structures as well. The way it works is, you go to a bank, set up a targeted savings contract that has $x contributions a month for 5 to 10 years and that earns a certain percentage. If you make all the contributions, and will use the final funds to purchase or build a home (you can use them for other things as well, but then won't receive and incentive), the government will subsidise your final balance by up to 50%, up to a certain maximum. Most people will manage to save 30-50% of their home costs that way and the resulting monthly payment afterwards is usually no bigger than the savings contribution they've been making all along.
Now, I don't think exactly this would ever work here, mainly because it's very expensive for the government to do that and taxes are much higher as a result of that. However, the idea behind it is that we'd be rewarding savings instead of subsidising credit. Think of it this way, the $8k home buyer credit could have been structured like this. If you manage to save for a 15% down payment, Uncle Sam will kick in another 5% so you can own a home you can afford with no PMI. Make that a 5 year or 10 year plan, and the initial cost for the taxpayer is low and stretched out over time.