SAN FRANCISCO (MarketWatch) -- It seemed so obvious at the time, back at the peak of the Internet bubble seven years ago this month. Profits no longer mattered.

You see, it was different this time. It was a new paradigm. Internet companies were changing the world and old measurements of success, such as profitability, didn't apply anymore.

Until of course, they did. And we're still living with the fallout from the resulting collapse in Internet stocks and tech stocks in general, seven years later.

The parallel with what's happening in the mortgage market seems eerily familiar. In the media, the general rule of thumb is that the next big crisis in the financial markets will come from something totally unexpected. An earthquake in Japan (Barings collapse); a plunge in Asian and Russian currencies and debt (Long-Term Capital Management); a shell game in the executive suite at one of America's most respected new economy companies (Enron).

The thing about the brewing mortgage debacle, however, is that everyone saw it coming. They just refused to believe it.

Questions have been asked about risky mortgage loans going back to 2003. What would happen to all the leverage taken on by home buyers when interest rates started to rise and the market turned around.

But the answer was always the same. It's different this time. The banks and lenders have sold the loans. They don't hold them.

Well, who does? The standard answer, seemingly true, was that they'd all been carved up and sold through various derivative instruments, so the risk was spread over a greater number of investors.

Oh, we all said. Those derivative markets are so hard to understand. The big boys like Bear Stearns BSC, -10.00% and Lehman Brothers LEH, know how to hedge against this stuff. And they'd never pass along bad goods, right?

So here we are this week at the popping of another great Wall Street myth; another big con that everybody -- even on the street -- bought into because the money was easy and the returns were great.

It wasn't like the media didn't try to do stories looking for signs of a turnaround. A piece about the prospect for banks, filed by MarketWatch's own Nick Godt back in September, looks remarkably prescient this week in its description of how the subprime lenders looked vulnerable. Read full story. Other media had similar warning stories.

But even the most pessimistic forecasts by people interviewed in these stories were offset by reassurances from the industry that everything was appropriately hedged.

In short, plenty of people worried this might happen but precious few were prepared to bet on it -- until now.

What's bizarre here is that the revelations of the problems in the mortgage market, caused by overaggressive selling as well as borrowing during the housing boom, are coming the same week as the elite of Wall Street gather to decry the state of financial regulation in this country as too restrictive, what with Sarbanes-Oxley and all that. Here we are in the middle of another self-induced financial implosion -- in a regulated industry by the way -- and the great minds are telling us that the answer is less regulation.

So just like with the Internet bubble, investors and in this case many home buyers are learning an expensive lesson about boom and bust. Each day subprime housing loan problems are turning up in new unexpected areas -- General Motors, H&R Block, specific mutual funds tied to real estate. The list will get larger and more unusual with each passing week.

These bad loans are out there -- and somebody owns them, or pieces of them. The search is on for who is holding the bag, be it subprime lenders, banks, investors in collateralized debt obligations, or CDOs, investment banks, GM GM, -2.37% and H&R Block HRB, +2.46% , or maybe one of the mutual funds in your 401(K).

At the end of the day, the horrible reality is that in some way, we all own them. And it serves us right.