The reason that they feel so risky and irresponsible is that we’re used to 30-year fixed rate loans. That meant that at the very height of the bubble, people used ARMs to get into houses that they couldn’t really afford — they could afford the teaser rate, but not the expected payment after the loan reset. The idea, crazy as it now seems, was to build some equity and sell if you really had to. Or something — it’s not always clear what people who took these loans were thinking.
Nor is it clear what those who recommended them were thinking.
As usual, McArdle is clever but not wise. The ARMs were a cancer of distortion on the market, because they helped destroy accurate price signaling in housing, and eventually, destroyed the market itself. I think it’s also interesting that while McArdle warbles about the potential benefits of ARMs, she doesn’t have one herself. As for me, one of the smartest financial decisions I ever made was making sure both of my mortgages – first and second – were fixed. So while all around me were losing their overpriced, overfinanced homes to crushing new interest payments, mine stayed the same, and stayed affordable.
But then, that’s the way folks in McArdle’s class tend to think: We’d never live that way, but it’s probably okay for you unwashed peons to do so.”
As for making the housing crash better? That line of argument is akin to saying, “We just murdered your parents, but now you won’t have to pay their rent. Aren’t you lucky?”