When I think of the housing bust, I picture tract housing on the edges of cities like Phoenix, the kind of places where half the houses are in foreclosure, promised amenities never get built, and the remaining homeowners struggle to hang on in an area without jobs .  We’ve done a pretty good job of dodging that bullet here in San Francisco.

But out by Lake Merced there’s a sad example of the cost of the “irrational exuberance” that led to the housing debacle: Parkmerced.   Actually, Park Merced is a great icon of two historic follies. It was built for drivers, isolated from shops and jobs. At 28 units per acre it’s about half as dense as the city’s average. And now the owners are joining legions of less-sophisticated homeowners into default.

For many of the homeowners in default, their original plan made sense. They wanted, in many cases, a home for the family in a safe neighborhood. The American Dream.  A lender assured them that they could handle the costs and that the value would keep going up.  Don’t worry about the small print.

Parkmerced’s story is similar to that of two other enormous properties, these in Manhattan.  For $5.4 billion (the largest  real estate deal  ever for a property), Tishman Speyer bought Stuyvesant Town and Peter Cooper Village. Estimated value today: $1.9 billion.  Poof:  $3.5 billion up in smoke. Half a billion has been written off by Calpers, the pension fund for California workers.

These 80- acres of buildings, with over 11,000 apartments, are a huge part of Manhattan’s middle-class housing stock.  My cousins, a schoolteacher and an editor, lived there.  Tishman Speyer’s plan, according to the New York Times: “replace rent-regulated residents with tenants willing to pay higher market-rate rents”.  And they had to: rents covered less than one third of the debt service on the loan.  Of course, they lost the buildings.

We’ll see how the Parkmerced saga unwinds. The owners, Stellar Management are in default on a $550 million mortgage.   It would be a shame if their plan to increase density and sustainability gets lost in the wreckage.  Fortunately, existing tenants are protected from becoming collateral damage of this speculation.

The homeowner who got in over his or head and is now underwater is nothing like the brains who got Calpers and the other lenders into this pickle.   He or she is probably not very well educated, young, and naïve. Many of them lost jobs in construction, building homes like their own for the buyers who never came.

But Tishman Speyer and the owners of Parkmerced, Stellar Management, are highly educated, savvy in the fantasy world of spreadsheets, as are the loan underwriters at Calpers and the banks.  This is what they do for a living.

They should have known better. Or cared more.