“American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.”
So, yes he was talking about the past ARMS better than fixed and did say that consumers would be taking the interest rate risk. HOWEVER, he clearly sent a message to banks to give more ARMs and implicitly told consumers they could save money with ARMS. You have to remember that Greenspan works to protect the banks, not the consumers!! He wanted banks to stay healthy and banks would be if they offloaded interest rate risk to the consumer. He did his job. Now, the media may have overstated his statement without including the risk portion. AGREED! However, he is/was one of the most powerful men on the planet. If he disagreed with the media interpretation, why didn’t he call a major press conference to Quell the furor?? Suzy Orman, finance columnist for Yahoo/CNBC lambasted Greenspan for suggesting ARMS with fixed rates at 40 year lows. No comment from the maestro. Only problem is that realtors and brokers may have used his “filtered” comments to pacify nervous consumers.
No conspiracy theory here. Read Jim Grants Interest Rate observer and Bank Credit Analyst, two highly respected newsletters for the straight scoop. Also check out Barry Ritholtz at http://bigpicture.typepad.com/.
BTW Greenspan made more in a single book advance than most of us will make in a lifetime. I don’t think he deserves an unpaid apologist.
