DrHousingBubble "The Genesis of the Credit Bubble: Advertising, Deception, and $163 Billion

[NMDemDist2]

in Subprime California Loans Resetting in 1 Year.

There is something to be said about creative marketing and the influence it has had on this credit bubble. Yes, it is one thing to go after the Federal Reserve, Wall Street, greedy speculators, or unscrupulous lenders since we tend to associate a sense of responsibility with them in creating this credit bubble. Yet not much has been examined about those that played on the psychological strings of the public and enticed them with dreams of golden brick roads and endless sunshine. The advertising behind the credit bubble has been amazing in its subtlety and deep in misguided financial advice. Let us take for example a current ad that has a woman talking about a Pay Option ARM mortgage.

The ad plays along this script:

“With my flexible mortgage, I have the option to pay what I can, when I can. I can pay:







The next part of the ad shows us a quick clip that subliminally tells us a lot of how people perceive credit. It uses the difference between the negative amortization payment and the fixed payment and calls it, get this, your savings.”

Maybe some of you have seen this ad or some variant of it. Frankly, I’m astonished they are still marketing this stuff given the political negativity surrounding the current housing market. This is one of the few that is currently airing and I’m not sure how much longer it will be going for given the nature of these mortgages. Yet the striking point of the ad is the message that whatever you don’t pay today is the same as you actually saving for tomorrow. This in fact is not only factually incorrect but also financially destructive. Think about what a negative amortization loan does. If you are to elect to pay only the lowest payment option, you are in effect increasing your mortgage balance each month. This in the world of reality and mathematics has the effect of growing your balance, the opposite of saving.

we haven't had a DrHB thread in a while.....

[Mountainman]

1. Three thoughts kept me from getting into trouble that way and set off alarm bells.

1. There ain't no free lunch.
2. If it sounds too good to be true it probably isn't.
3. You don't get something for nothing.

[Systematic Chaos]

2. Did you forget a link?

:shrug:

[fed-up]

3. here's the link

http://www.doctorhousingbubble.com/the-genesis-of-the-credit-bubble-advertising-deception-and-163-billion-in-subprime-california-loans-resetting-in-1-year/

April 4th, 2008
The Genesis of the Credit Bubble: Advertising, Deception, and $163 Billion in Subprime California Loans Resetting in 1 Year.