The Fed: Oops, we're doing it again!

No sooner had the housing market bubble burst in 2008 than the culprit for the real estate bubble was identified, in part, as the teaser interest rates. Teaser interest rates, also called adjustable rate mortgages, are very low short-term interest rates which reset to more normal longer term rates after a period of time. These teaser interest rates allegedly enabled people to buy a type or size of home beyond that which they ordinarily might have afforded due to very low initial monthly payments. When these interest rates reset after the "teaser period ended," it became apparent that many people who had previously acquired homes were no longer able to afford them. In the present day, Federal Reserve chairman Ben Bernanke recently commented that consumer spending is growing relatively weakly in the United States and that interest rates must be kept low to encourage consumer spending. Since the housing bubble, the Federal Reserve and the Department of the Treasury have implemented a...(Read Full Article)

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