House Of Debt Summary

“House of Debt” is a book largely free of equations, slangs, econometrics or data tables. However, no reader should be cheated. This book is a summary of a highly serious program of economic research – one that is in many ways a model for what economists should do. Mian and Sufi, professors at Princeton and the University of Chicago respectively, have examined a profoundly important question: what causes protracted downturns in economic activity? They have reorganized new data – for example, on spending by zip code – to test their hypotheses, assembling such a range of evidence from so many different sources that their conclusions are not susceptible to challenge by those looking to point out statistical errors. Mian and Sufi stated a variety of problems in “House of Debt”. First, they noted that data on credit spreads suggest that the financial system was fully repaired by late 2009, and that even though the economy at that point was very depressed, growth had been feeble since. Second, they observed that spending on housing and durable goods such as furniture and cars decreased sharply in 2006 and 2007, well before any financial

Resurrecting arguments that go back at least to Irving Fisher and that were emphasized by Richard Koo in considering Japan’s stagnation, Mian and Sufi also highlighted how harsh leverage and debt can be – for example, when the price of a house purchased with a 10 % down payment goes down by 10 %, all of the owner’s equity will lost. So their story of the crisis blames excessive mortgage lending, which first inflated bubbles in the housing market and then left households with unmanageable debt burdens. These burdens in turn led to spending reductions and created an adverse economic and financial spiral that ultimately led financial institutions to the