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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: TheSlowLane who wrote (13725)5/12/2004 6:05:53 PM
From: Gemlaoshi  Read Replies (1) of 110194
 
SlowLane... How ironic that that it has taken only 75 years to come full circle from the real estate debacle of the Great Depression years.

the-history-of.net

The primary cause of so many home foreclosures during the depression was the short-term (usually <5 years) and the ARM-like nature of housing mortgages. The FHA and other New Deal programs finally gave Americans financial and housing security with the 30-year fixed rate mortgage.

I believe our grandparents would roll over in their graves at the sheer stupidity of 1-year ARMs and interest-only mortgages that the financial hucksters are pushing like cocaine to an addict.

These new products violate the most basic of risk management techniques and are the exact same idiocy that brought down the whole S&L industry in the late 1980s. That is, you must be able to hedge if the maturity of your assets and liabilities do not match. Or, in other words, never finance a long-term asset with short-term money. It is very possible that in the event of a liquidity crisis, ARM money may not be available at any price.

Many innocent people are unfortunately going to be hurt, but it sure is going to make one hell of a splash when it tumbles!!
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