House Of Debt: How They (and You) Caused The Great Recession, And How We Can Prevent It From…

Paperback | May 20, 2015

byAtif Mian, Amir Sufi

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The Great American Recession resulted in the loss of eight million jobs between 2007 and 2009. More than four million homes were lost to foreclosures. Is it a coincidence that the United States witnessed a dramatic rise in household debt in the years before the recession—that the total amount of debt for American households doubled between 2000 and 2007 to $14 trillion? Definitely not. Armed with clear and powerful evidence, Atif Mian and Amir Sufi reveal in House of Debt how the Great Recession and Great Depression, as well as the current economic malaise in Europe, were caused by a large run-up in household debt followed by a significantly large drop in household spending.

Though the banking crisis captured the public’s attention, Mian and Sufi argue strongly with actual data that current policy is too heavily biased toward protecting banks and creditors. Increasing the flow of credit, they show, is disastrously counterproductive when the fundamental problem is too much debt. As their research shows, excessive household debt leads to foreclosures, causing individuals to spend less and save more. Less spending means less demand for goods, followed by declines in production and huge job losses. How do we end such a cycle? With a direct attack on debt, say Mian and Sufi.  More aggressive debt forgiveness after the crash helps, but as they illustrate, we can be rid of painful bubble-and-bust episodes only if the financial system moves away from its reliance on inflexible debt contracts. As an example, they propose new mortgage contracts that are built on the principle of risk-sharing, a concept that would have prevented the housing bubble from emerging in the first place.

Thoroughly grounded in compelling economic evidence, House of Debt offers convincing answers to some of the most important questions facing the modern economy today: Why do severe recessions happen? Could we have prevented the Great Recession and its consequences? And what actions are needed to prevent such crises going forward?

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The Great American Recession resulted in the loss of eight million jobs between 2007 and 2009. More than four million homes were lost to foreclosures. Is it a coincidence that the United States witnessed a dramatic rise in household debt in the years before the recession—that the total amount of debt for American households doubled bet...

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. Amir Sufi is the Chicago Board of Trade Professor of Finance at the University of Chicago Booth School of Business.

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Format:PaperbackDimensions:232 pages, 9 × 6 × 0.9 inPublished:May 20, 2015Publisher:University Of Chicago PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:022627165X

ISBN - 13:9780226271651

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Extra Content

Table of Contents

1. A Scandal in Bohemia

Part I: Busted

2. Debt and Destruction

3. Cutting Back

4. Levered Losses: The Theory

5. Explaining Unemployment

Part II: Boil and Bubble

6. The Credit Expansion

7. Conduit to Disaster

8. Debt and Bubbles

Part III: Stopping the Cycle

9. Save the Banks, Save the Economy?

10. Forgiveness

11. Monetary and Fiscal Policy

12. Sharing

Acknowledgments

Notes

Index

Editorial Reviews

“Mian and Sufi argue that ‘economic disasters are almost always preceded by a large increase in household debt.’ It is debatable whether this is a universal truth. But it is certainly true of the financial crisis of 2007-08. The authors argue, persuasively, for a shift from traditional debt towards contracts that share losses between the suppliers and users of finance.”