Today I realized I've been wrong about something.

I've been under the impression that long term interest rates during the past few years were extremely low by historical standards and were being held that way to engineer unsustainable credit driven growth. I presumed that in the future interest rates will go up substantially. That perspective is wrong, depending on your perspective about what "substantially" means. Although certainly interest rates are low right now in order to encourage borrowing, if you look at schiller's data you can see that historically they have always been low. The extremely high (>8%) interest rates of my childhood were the historical oddity.

If the economy does recover there is a chance that unwanted inflation might need to be worked out by setting prohibitively high interest rates again, so they might be going up in the future, but over the long term we should expect them to be less than 6%.

That means that adjustable rate mortgages aren't really as risky as I thought so long as you can accept the range of potential rates and are not putting yourself in a position where you can only afford the loan in the best case scenario (which many, many people did).

Things like Option ARMs are getting a bad rap in this crisis because they have been abused by so many people. There is a reasonable application for them - but you have to be responsible enough to usually make principal payments and only exercise your **Option** to pay "interest only" in the case of a financial emergency. The problem is not the loans. The problem is misunderstanding and misuse of the loans.