I’ve been watching the housing boom–especially in the crazy U.S. markets like Boston and parts of California–with interest and a kind of schadenfreud-laden waiting for the bust to begin.
This most recent Businessweek article just confirms all my basic notions: that people do remarkably stupid things, especially when they are motivated by greed, and that they are happily helped into doing so by bankers & brokers who are not much better than street-level con men. Oh, and of course, that no one learns from the lessons of history, even extremely recent history.
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The option adjustable rate mortgage (ARM) might be the riskiest and most complicated home loan product ever created. With its temptingly low minimum payments, the option ARM brought a whole new group of buyers into the housing market, extending the boom longer than it could have otherwise lasted, especially in the hottest markets. Suddenly, almost anyone could afford a home — or so they thought. The option ARM’s low payments are only temporary. And the less a borrower chooses to pay now, the more is tacked onto the balance.
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