I know any number of people who played the lottery knowing fully well that they were gambling on the future price apprciation and their ability to refinance two, three or five years down the road. Some got burned, some didn't. But I only know one person personally who really didn't seem to know what they were doing. And even that person thought he was getting away with something.
I live in the Boston area, where the house price to income ratios got crazy in the 2003-2006 timeframe. But too many homeowners thought they had hit the lottery. I know lots of people who did cash out refinancing to live well beyond their means for a while. Electricians buying $40,000 boats, jaccuzis, $30,000 man caves. All using their houses as ATMs. Even the people who sold us our house in 2004, made $250k on the deal, bought a bigger house with an ARM and were bust three years later. But they lived the life of Riley for three years. Our income is probably three times theirs, but for a while they lived better than us.
I am a loony leftist, but I am not loony enough to reflexively blame the banks for the consumer end of this. I have a bigger beef with them on the investor side, the way the loans were packaged and the securities rated.