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House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again Hardcover – May 21, 2014
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1. Always quoting relevant research, but never attempting to talk over your head, they start by explaining how the poorest 20% of homeowners on average lost their entire net worth in the crisis, all while the richest 20% came out unscathed. How come? Simple: 1. The top 20% mainly hold financial assets that were protected by the Fed 2. The top 20% are indirectly the guys holding on to the mortgages that the poorest 20% are still paying or alternatively the US government guaranteed by taking over the obligations of Fannie and Freddie. All the recent talk about inequality? Go no further. The authors have it covered by page 40. Next!
2. They then explain that the poorest 20% have a marginal propensity to consume that is a large multiple of that of the richest 20%, an effect that also works in reverse and explains most of the fall in consumption (and thus aggregate demand) in the economy once their home equity had wiped out their lifetime savings. Yes, I'm confusing wealth effects with income effects here, but only for the sake of brevity. The authors do not! In short, the way you lose your house is you lose your income first (for example, divorce cuts it in half or illness in the family keeps you from working), next you miss payments, then you lose the house, which represented all your wealth to cap it all off. Alternatively, it's all set off when your monthly payment rockets up.Read more ›
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.Read more ›
Chapters 1-7 present this theory and the supporting evidence. I came to this book holding this belief to begin with, so not surprisingly, I find the thesis persuasive. In my review of the book "Guaranteed to Fail' on this website back in 2011, I wrote: "From 1986 to 1995, the annual growth in US residential mortgage debt averaged less than $200 billion per year; considering inflation and population growth, the rate of growth relative to demand declined significantly over that period. In 1995, when mortgage growth was only $150 billion, the then administration launched its "National Homeownership Strategy" to expand home ownership in which [GSE] financing played a major role. By 1998, mortgage growth more than doubled, past $300 billion; by 2001 it was over $500 billion, and in 2005, it exceeded $1 trillion. In other words, annual mortgage growth went up more than 600% in that decade.Read more ›
Most Recent Customer Reviews
This should be required reading for all students and workers. It discusses complex concepts in ordinary, understandable terms. It is easy to read and understand. Read morePublished 7 days ago by Bilal Yasin El-Amin
Interesting and well presented. I am not a brainy person, but was able to follow it, and enjoyed hearing their perspectives, theories and observations.Published 1 month ago by J. Terry
Authors did a good job describing in a very accessible language how the mortgage crisis impacted less affluent part of society but the book is a phenomenal piece to illustrate how... Read morePublished 1 month ago by Amazon Customer
This is one of the most readable econ books I've seen in a long time. It consistently explains most of our recent whoopsies without getting boring or political, and it has some... Read morePublished 2 months ago by Karl Vogel
I bought it on kindle. Honestly if u want to learn more about why the housing market crashed, read the Big Short.Published 2 months ago by Paul J. Laughlin Jr.
Great, simple read on the housing crisis and offers a unique solution. I would definitely recommend this to anyone interested in learning more about what happened leading up, and... Read morePublished 3 months ago by Linds
A long, 232 page book covering the very simple relationship between high consumer debt, the bubble that follows, and the recessions/depressions that take place when the bubble... Read morePublished 5 months ago by A&E