No, he did not. He stated a fact (which IS actually a fact): if people used ARMs rather than fixed loans in the past, they would have saved money. His statement has been widely misinterpreted in the media, though, as saying that people “should” use ARMs from now on.
And to keep things in perspective: believe it or not, it is actually true that ARMs are generally cheaper than fixed-rate loans over the long run. On a fixed-rate loan, the lender assumes interest-rate risk, so it compensates for that by higher rates. If the borrower is willing to shoulder that risk, he/she gets lower rates in return. It’s the exact same thing with Treasury yields: long-term paper (30-year bond) almost always yields more than short-term paper (6-month bill). Think of the 30-year bond as a 30-year “fixed mortgage”, and the 6-month bill as a “6-month ARM”. The yield curve is sometimes flat or inverted, but most of the time the 30-year yields more than the 6-month.
And before you power up your flamethrowers, no, I’m not talking about the 1% teaser ARMs, the ARM as an “affordability vehicle”, and all the other junk out there.
