House of debt How they (and you) caused the Great Recession, and how we can prevent it from happening again

In this readable book, Mian (Princeton Univ.) and Sufi (Univ. of Chicago) 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? The authors believe too much debt/credit caused the bubble, but they blame equity losses of low net worth households for reduced consumer spending and, consequently, rising unemployment. They also argue that the wealthy did not suffer proportional net worth losses, and they propose lenders share losses/gains in property values to curb credit excesses and spending volatility. Increasing the flow of credit, they show, is disastrously counterproductive when the fundamental problem is too much debt. The logic is sound, but it ignores activity pushing home ownership by activists, regulators, and Congress. Many foreclosed homes, for instance, were purchased with lowered credit standards. Speculation fueled debt growth and the bubble. Policy saved financial institutions, not those losing their net worth. The authors believe their policy would reduce volatility of consumer spending and prevent recessions. The issue, however, remains: would financial reform work? --Edward C. Erickson, California State University, Stanislaus