It’s possible America learned nothing from the financial crisis


When mortgage rates shot up by a full percentage point in June, analysts at Discover (as in, the credit card company) Home Loans saw an immediate reaction from their customers. They didn't go looking for less expensive houses. They started asking about adjustable-rate loans.

An ARM, as you may recall, allows homebuyers to borrow more money, with higher risk: It locks in an interest rate for a set amount of time, but then the rate can rise when that time expires. ARMs aren't inherently dangerous, but the financial crisis showed America how they could be, in the hands of buyers whose eyes are bigger than their ability to make payments.

Now the crisis has come and gone, and the nation is still gingerly picking its way out of the wreckage. And for several years homebuyers have flocked to safer and more traditional mortgage products, and it's possible that the new wave of interest in ARMs isn't that scary, economically. Maybe it's temporary -- maybe prospective buyers will, in the face of higher interest rates, look to buy cheaper houses.

But what if it isn't?

Cameron Findlay, the chief economist for Discover Home Loans, told me that the rush to adjustable-rate loans signals to him “that the consumer psyche is, they’re still reaching. If an interest-only product still existed today, I think they’d be jumping right back on that.”

He added: “Sadly, us as Americans, I think we have a very short memory span on all that stuff.”

It's early to tell, but the same might be true on credit-card debt. The Federal Reserve said this month that revolving consumer credit -- credit cards, overwhelmingly -- increased an annualized 9.3 percent in May. The measure is volatile, but it's trending back up toward pre-crisis levels.


Again, this might not be a bad thing -- as my colleague Neil Irwin points out. But if America's still-not-roaring recovery is being financed more and more by debt, and if the definitely roaring housing market recovery starts to depend on riskier and riskier mortgage products, well, that would be a textbook definition of short memory.

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact. He's from Oregon, and he misses it.
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Sarah Kliff · July 11, 2013