Artful Dodger: oh that's right, you are an educator , seriously tho, and ARM is just a tool, as Czuch points out a long term buyer wants the stability of a fixed rate at a higher rate, it will be lower than an ARM in the long run while someone who will be in their house a short time or is flipping the house would be better suited with the ARM.
While banks should make this clear, it's not their fault that many people are not savvy about finances
Also remember that most lenders bundle and sell off loans and don't get hurt by people that default