Look back, or look ahead. As society's households, businesses, and government work through months and months more of pain, toward an eventual redemption from the economic crisis, we're going to need to take a harder look at a fundamental change we introduced into our cultural fabric in the past three decades: people who borrow to live.

Since at least the 1970s, Americans increasingly have come to rely on credit to fuel both consumption and investment. More and more people started to use credit to obtain basic needs, attain luxuries, and buy homes as the centerpiece of their investments. During the late 1990s and accelerating this decade, people previously denied credit because of past problems paying their bills were able to get subprime credit cards, auto loans, and mortgage loans.

As homeownership surged, people also started substituting mortgage debt for consumer debt, tapping their equity both for necessities and simply to splurge. For a time, mortgage credit was extended to such borrowers on tight terms and only with more traditional products like a 30-year fixed rate mortgage. But around about 2003 and 2004, investor appetite for mortgage debt and home buyers' willingness to take great mortgage risks to get in on the hottest housing markets of a generation simultaneously led to a massive relaxation of underwriting standards and an explosion of risky products. By 2006, one in five mortgage originations was a subprime loan. And about one in five loans made that year was either an interest-only loan or a loan that gave borrowers the option to make a minimum payment and roll the difference into their principal balance, much like a credit card. Many were made with teaser rates that fell away a year or two after origination and led to sharply higher payments.

Investors took high risks that at first came with high a return. As long as prices were rising, borrowers that got in trouble paying high interest rates or when the payments on their loans reset could always just refinance or sell their homes at a profit. Investors were made whole. When prices finally stopped soaring, the music stopped and mortgage investors could not find a safe chair. By early 2007, Bear Stearns had two hedge funds built on securitized investment vehicles for subprime loans go kaput. It hasn't stopped.

The problem, we know today, was that all along the pipeline, three essentials were missing. One was a truing up or proper quantification of the risk to lenders, investors, businesses, and governments. Another was proper regulation and third-party oversight of the juggernaut set in motion as financial product development got more and more creative. A third was enough capital among counterparties to make good on their obligations.

Ultimately, the outcome was people borrowing to live as never before and, for many, a substitution of mortgage debt which cannot be discharged in bankruptcy for consumer debt that could have been.

CHARGE IT: The new book from Harvard's Nicolas P. Retsinas and Eric Belsky examines how a credit-addicted culture contributed to the current crisis.

This is the point of the new book, Borrowing to Live: Consumer and Mortgage Credit Revisited, published by the Brookings Institutions Press, and edited by my JCHS colleague, Nicolas P. Retsinas and myself. In the book, we assemble insight from a group of experts from academia, research, and public service to analyze the current state of consumer and mortgage credit in the United States. We offer solutions to maintain and expand credit while protecting consumers and avoiding a reoccurrence of the current crisis.

We've got to learn better to manage around an appropriate recognition of financial risk and an appropriate oversight of the businesses that help people attain the now tarnished American Dream of homeownership.

Eric Belsky is executive director at the Joint Center for Housing Studies at Harvard University.