Download PDF House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again
Oktober 25, 2012 |
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Download PDF House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again
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House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again
Download PDF House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again
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Review
“The most important economics book of 2014; it could be the most important book to come out of the 2008 financial crisis and subsequent Great Recession. Its arguments deserve careful attention, and its publication provides an opportunity to reconsider policy choices made in 2009 and 2010 regarding mortgage debt. House of Debt is important because it persuasively demonstrates that the conventional meta-narrative of the crisis and its aftermath, which emphasizes the breakdown of financial intermediation, is inadequate. . . . All future work on financial crises will have to reckon with the household balance sheet effects they stress. After their work, we can still believe in the necessity of financial rescues; however, we can no longer believe in their sufficiency. And after their work, we have an important new agenda of reforms to consider if future crises are to be prevented.” (Lawrence Summers Financial Times)“Mian and Sufi are convinced that the Great Recession could have been just another ordinary, lowercase recession if the federal government had acted more aggressively to help homeowners by reducing mortgage debts. The two men — economics professors who are part of a new generation of scholars whose work relies on enormous data sets — argue . . . that the government misunderstood the deepest recession since the 1930s. They are particularly critical of Timothy Geithner, the former Treasury secretary, and Ben Bernanke, the former Federal Reserve chairman, for focusing on preserving the financial system without addressing what the authors regard as the underlying and more important problem of excessive household debt. They say the recovery remains painfully sluggish as a result.” (Binyamin Appelbaum New York Times)“A concise and powerful account of how the great recession happened and what should be done to avoid another one. Atif Mian, an economist at Princeton University, and Amir Sufi, a finance professor at the University of Chicago, make a strong circumstantial case that household debt was the recession's main culprit. They also find it skulking in the background of previous downturns, usually loitering in the vicinity of a housing bubble. . . . House of Debt is clear, well-argued and consistently informative. . . . Mian and Sufi's proposal to shift much of the risk of falling home prices to lenders—while rewarding them for their trouble—is a good place to start. If we don't put moralizing aside and analyze dispassionately what caused the last crisis, we areunlikely to prevent the next one.” (Wall Street Journal)“Subsequent reforms to our financial system give policymakers more tools to police housing finance, yet the continuing over-reliance on debt and a lack of good jobs leaves families at risk and exposes our economy to the whipsaw of another debt-fueled credit bubble. Mian and Sufi deserve credit of another kind for detailing how ensnared the American Dream is in this tangled web of debt finance—and how exposed the vast majority of us are to the broader economic consequences. “ (Atlantic)“Distills lessons about the crisis from their recent research into one easily digestible package.†(Economist)“Sufi and Mian have been publishing important work on this topic for the last eight years, beginning well before the 2008 crisis. Their arguments are compelling and deserve widespread attention, especially at a time when Tim Geithner and others are trying to rewrite history – and when many homeowners still need help.†(Richard Eskow Huffington Post)“The economists Mian and Sufi are our leading experts on the problems created by debt overhang (and the authors of an important new book on the subject, House of Debt); they looked at Geithner’s claims about the benefits of debt relief to the economy and showed that they are absurdly low, far below anything current research suggests.†(Paul Krugman New York Review of Books)“In House of Debt, their brilliant new book . . . Mian and Sufi detail the ways in which the housing bust damaged the economic well-being low- and middle-income households across the country.†(National Review)“House of Debt by Atif Mian and Amir Sufi of Princeton University and the University of Chicago, respectively, reads things a bit differently and, to my mind, more sagely. The authors contend that Geithner and colleagues erred mightily in not focusing more on homeowners. Homeowners’ post-bubble mortgage debt overhang was a much greater long-term threat to the macroeconomy than was bank failure. It was also, as I and others argued at the time, the ultimate source of bank peril itself. Rescuing homeowners would accordingly have offered a twofer, binding the wounds that the bailouts could but bandage. . . . Superior to Geithner’s take on the crisis.†(The Hill)“Much has been written about the boom and subsequent bust that rocked the US economy during 2007–2009, but insightful and informed analysis is much rarer. This book is one of those rare gems. It offers an in-depth look at the state of housing, consumer credit, household incomes, and debt around the crisis and presents an informed discussion about its causes and consequences. The analysis of crisis resolution has resonance, not only for the United States, but for the many countries that are still entangled in severe financial difficulties.†(Carmen Reinhart, Harvard University)
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About the Author
Atif Mian is the Theodore A. Wells '29 Professor of Economics at Princeton University and director of the Julis-Rabinowitz Center for Public Policy and Finance.
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Product details
Hardcover: 192 pages
Publisher: University of Chicago Press; First edition (May 21, 2014)
Language: English
ISBN-10: 9780226081946
ISBN-13: 978-0226081946
ASIN: 022608194X
Product Dimensions:
6 x 1 x 9 inches
Shipping Weight: 9.9 ounces (View shipping rates and policies)
Average Customer Review:
4.3 out of 5 stars
101 customer reviews
Amazon Best Sellers Rank:
#346,962 in Books (See Top 100 in Books)
I found the early chapters of the book to be well written and insightful. Essentially, the authors documented the rapid expansion of private debt to unsustainable levels, as the public chased home appreciation, caused by easy credit. The authors went on to avert that the collapse in housing prices had a greater adverse effect on the wealth and spending habits of the poorer cohorts of our society. They asserted further that the efforts of the government and the FED to mitigate the effects of the Great Recession where ineffective since they did not address the major cause, that being, the over leveraged private sector. They assigned most of the blame to lenders while leveling much milder criticism on the government, FED, Fannie and Freddie, and the American public.The final third of the book described the authors' solution to the problem. The authors assert that creditors did not absorb their fair share of the losses as a result of the collapse of housing. Their solution was a new mortgage contract they named a "shared-responsibility mortgage" (SRM) which essentially places the lender in a partial equity position. The lender could absorb future losses through reduction of mortgage principal if the underlining property fell in value and additional profits if the home appreciates. All the subtracting would result from changes in various indices that the authors claim can be developed. The additions would be recognized at the time of sale. (What happens if the owner does not sell his home? Is he presented with a bill by the mortgage holder at the time the mortgage is paid off? What happens if the owner dies does the note holder have a claim against the estate)?The authors were heavy on the positive macroeconomic effects of such a program and light on detail. The complexity of these products would be well beyond the ken of the vast majority of the American public, who couldn't understand the workings of a simple ARM, according to the media. I can not image the required regulations, new federal agencies, political demagoguery, and potential fraud by lenders and homeowners of such a complex product.The debt orgy that we experienced in the first decade of this century would not have happened a generation ago. Prior to the GSE's and securitization, lender's where much more prudent dispensing credit since they anticipated holding the mortgage until redemption. A far simpler solution would be to require lenders to maintain an significant stake in any mortgage orginated by their institution. Adam Smith and Nassim Taleb would understand!
This book was a useful read for me because it laid out the relationship between excessive mortgage debt, the collapse in demand and the depth of the great recession. They also make some interesting assertions about the impact of collapsing house prices on wealth inequality; the minor role played in the recession of a systemic threat to the banking system (as opposed to a liquidity crsis); and therefore the umipactful wealth transfer from taxpayers to bankers, and bank shareholders and lenders. In general, such assertions are interesting but sloppy. As happens so often in these popularizing books, the writers spin a coherent logic but forget that logic and the real world are two different animals. As a result, empirical tests seem very thin. Countervailing explanations are not fairly considered before rejection. For example, isn't it possible that the taxpayer bailouts of the banking industry saved the banking system? Can't that explain the lack of impact on recession? I wouldn't say they are absolutely wrong so much as they don't give the lay person the tools to fairly evaluate their assertions. Finally, their preventitive for a future housing price based recession adresses the moral hazard of mortgage forgiveness. But other than that it seems wholly unrealistic. They fail to address any issues relating to regulatory capture and excessive regulation.
Amir and Atif have collaborated on a tour de force describing the foundation of the Great Recession, which they’ve published 6-8 years after the key events. Contemporaneously with the same events, Richard Bowen with Citigroup was also aware of an Imminent Collapse, and was doing everything he could to protect the company he was managing. Bowen’s efforts to insulate his company from the storm were in direct opposition to the overwhelming desire of the other key managers to continue their alchemical reports and become personally wealthy. Bowen (www.richardmbowen.com) was quickly discharged. Citigroup, much too big to fail, paid moderate fines and has suffered a bit. Three hundred fifty-two other banks, be they forever nameless, have failed outright since 2008, at this writing.When one enters a casino with the roulette wheels all painted red, it is hard to resist the impulse to play. When one notes that the Gaming Commissioner and the County Sheriff also have seats at the table, RED becomes an even more attractive position. The National Bedtime Story has focused the blame for This Great Recession on your neighbor’s avarice for granite countertops. That problem is now solved. We continue to print money; maybe we’ll start calling them Continental Dollars.I’m currently taking a position as a judicial activist, focusing on this same bad economic period, and these same bad actors. I’m using Amir and Atif’s House of Debt as a key educational resource to my juries, along with Jennifer Taub’s Other People’s Houses, and Michael Lewis’ The Big Short. Something must be done.
What an amazing read! The basic premise is that household debt is the culprit behind so many of the recessions and economic downturn that we've seen last century. And the research supports it.The formula is simple: as households incur more debts, the whole economy gets closer to a downturn. While the sub-prime mortgages really hurt us, so many of the middle class who own only 20 to 30% of their homes were painfully affected. The ones who are able to withstand such downturns are ones who own most of their capital (like 80% of their homes and other properties).The solution is simple:- From a consumer standpoint, try to avoid debt. If you have to, make sure you not only afford it, but also have buffer so you're not stretched.- From a system standpoint, new options have to exist where it's more focused on equity and less on debt.All in all, it was one of the best books that I read about the economic meltdown of 2008.
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