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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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Editorial Reviews

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)

“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)

“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)

“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)

“Atif Mian and Amir Sufi, our leading experts on the macroeconomic effects of private debt, have a new blog [www.houseofdebt.org]— and it has instantly become must reading.”
(Paul Krugman New York Times)

House of Debt is a very important book, reaching beyond surface explanations of the Great Recession to identify the fundamental cause—excessive private debt built up in the pre-crisis boom years. It combines meticulous empirical research with an ability to see the big picture. Its message needs to be heeded and its proposals for reform seriously considered if we are to avoid repeating in future the mistakes of the past.”
(Lord Adair Turner, former chair, Financial Services Authority)

“Mian and Sufi have produced some of the most important and compelling research on the impact of debt on consumer behavior during the recent housing bubble and bust.  This excellent new book presents and expands this research in a rigorous, yet engaging and accessible way.”
(Christina D. Romer, former chair of the Council of Economic Advisers)

“This is a profoundly important book that makes a huge range of serious empirical evidence on the financial crisis accessible to a broad readership.  A compendium of Mian and Sufi’s own celebrated work would already be a spectacular contribution, but this book is so much more.  Although the authors present all views in a balanced, scholarly way, their quiet insistence that we should have moved faster to write down household mortgages is well-reasoned and compelling.”
(Kenneth Rogoff, Harvard University)

“The country needed a bailout—the government just chose the wrong one. That’s the case economists Atif Mian and Amir Sufi made this year in a book aiming to rewrite the story of the recession—and what our politicians should have done about it. If they’re right, future crises may be handled entirely differently.”
(Politico)

“One of the most important insights about the state of the European economy right now comes from postcode data in the US. In their magnificent book House of Debt, Mian and Sufi find that what is outwardly disguised as a credit crunch is in reality a fall in demand for loans. Their analysis lends credence to the idea of a balance sheet recession: the notion that indebted households and corporations do not care about cheap interest rates but just want to offload debt. When that happens, monetary policy becomes ineffective.”
(Financial Times)

“Most books about economics are hard going, ploddingly earnest and pretty impenetrable. This one is not. It is one of those rare pieces of work that actually contains more than one “wow” moment.  . . . Mian and Sufi are empirical economists. They are both clever. . . . But where they differ from most of their peers is that they are prepared to dig down into the data, often to the individual postcode level, to see just what the impact of a particular policy decision was and, as important, which way causality flows.”
(Financial World)

“Perhaps the most important single lesson of the crisis is that beyond some point the growth in debt adds to the fragility of the economy more than it adds to either personal welfare or aggregate demand. Atif Mian and Amir Sufi argue this persuasively in House of Debt.”
(Martin Wolf Financial Times)

“A perceptive book, House of Debt, by Atif Mian and Amir Sufi, makes a strong case that the excessive level of borrowing by middle-class and even poor Americans was a fundamental cause of deep recession. Once unemployment started o rise, Americans had less buying power because they were strangled by mortgage and other debt.”
(New York Review of Books)

“It is all too easy to get wrapped up in the glamour and squalor of financial maneuvers. One forgets that the financial system is useful only to the extent that it makes the everyday economy of production, employment, consumption and capital formation work better, and avoids doing harm. Mian and Sufi do not make this mistake. Their principles and their very ingenious research keep the focus where it belongs. They tell a powerful story about excessive debt that any reader can understand, they nail it down with careful use of data, and they have serious ideas about how to make the system better and safer. It is a splendid book.”
(Robert M. Solow)

“In this readable book, Mian and Sufi pose questions pertaining to the 2008 financial crisis and subsequent great recession: Why did the housing bubble vary in severity?  Why did unemployment increase where housing prices were stable?  Can a reoccurrence of this financial crisis be prevented? . . . . Recommended.”
(Choice)

“Many books have been written trying to explain the housing crash and the subsequent mortgage meltdown. This book, however, adds clarity to a murky topic. It offers new insight into housing debt, consumer spending, and how mortgage debt—if abused—can lead to disastrous results. Moreover, their proposal to shift mortgage risk to lenders is an interesting concept.”
(Housing News Report)

“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.”
(Financial Times)

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

  • Hardcover: 192 pages
  • Publisher: University Of Chicago Press (May 21, 2014)
  • Language: English
  • ISBN-10: 022608194X
  • ISBN-13: 978-0226081946
  • 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  See all reviews (73 customer reviews)
  • Amazon Best Sellers Rank: #85,917 in Books (See Top 100 in Books)

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Customer Reviews

4.3 out of 5 stars

Most Helpful Customer Reviews

41 of 48 people found the following review helpful By MT57 on May 19, 2014
Format: Hardcover
The authors present a short and pithy argument that household debt, particularly mortgage debt, grew excessively in the years leading up to the financial crisis of 2008, and show correlations between the growth of mortgage and other household debt in various communities, on the one hand, and drops in employment and household spending in the same overly levered communities, on the other.

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.
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17 of 18 people found the following review helpful By Athan on July 11, 2014
Format: Hardcover
In this very short and extremely readable book two young professors prove with mathematical rigor (and in plain English) that the recent "Great Recession" was caused by the overindebtedness of America's poorest homeowners. It is truly incredible how much economics they pack into this 187 page book and how much of it you can absorb without stretching yourself. Brief summary of the argument:

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.
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4 of 4 people found the following review helpful By Matthew Mahoney on September 7, 2014
Format: Kindle Edition Verified Purchase
I can't say enough good things about this book. Well-researched (fact-filled), well-written (clear and unpretentious), well-reasoned (never found a logical fallacy).

I come from the Austrian economic tradition, with a libertarian political orientation. And although the authors are mainstream liberal, And I don't agree with all of their policy prescriptions or assumptions, I think this is the best book written on the subject of the housing/financial crisis: why it happened, how it could have been avoided (both before and after the fact), and what policy reforms are necessary to escape it and prevent in the future.

The authors have realized, as hardly any economists or policy makers have, that the problem is debt: how it's hanging over households, making any recovery impossible. They demonstrate this through facts and empirical evidence, and have a brilliant, well-crafted solution: the transition from debt-financing, with its concentration if risk and perverse incentives, to equity financing writ-large, which more equitable and systemically sound risk distribution.

I would pair this book with a study of the intricacies of Austrian Capital theory to show why some of their positive treatment of traditional government intervention to save an economy (which they then say is inferior to the equity solution) ultimate makes the problem worse by warping an economy's capital structure further than the bubble already has. But their insight that debt is the real culprit is right on. And their solution is bold, brilliant, and effective.

My only critique: they call Murray Rothbard a historian, his Econ PhD from Columbia notwithstanding.
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