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House of Debt

Author

Listed:
  • Mian, Atif
  • Sufi, Amir

Abstract

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?

Suggested Citation

  • Mian, Atif & Sufi, Amir, 2015. "House of Debt," University of Chicago Press Economics Books, University of Chicago Press, number 9780226271651.
  • Handle: RePEc:ucp:bkecon:9780226271651
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Assessing Housing Risk
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-10-15 11:28:50

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    Cited by:

    1. David Loschiavo, 2016. "Household debt and income inequality: evidence from Italian survey data," Temi di discussione (Economic working papers) 1095, Bank of Italy, Economic Research and International Relations Area.
    2. Deeksha Gupta & Itay Goldstein, 2016. "Sustainable Housing Policy," 2016 Meeting Papers 607, Society for Economic Dynamics.
    3. Alfred Duncan & Charles Nolan, 2015. "Objectives and Challenges of Macroprudential Policy," Working Papers 2015_22, Business School - Economics, University of Glasgow.

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