House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again

The Great American Recession of 2007-2009 resulted in the loss of eight million jobs and four million homes to foreclosures. Atif Mian and Amir Sufi examine the role of household debt in this crisis, noting that total American household debt doubled between 2000 and 2007 to $14 trillion. Mian and Sufi argue that the Great Recession and Great Depression, along with other periods of economic decline, were caused by large increases in household debt followed by significant drops in household spending. While the banking crisis received public attention, the authors contend that current policy overly favors protecting banks and creditors. They present data showing that increasing credit is counterproductive when the core problem is excessive debt. High household debt leads to foreclosures, causing individuals to spend less and save more, which reduces demand for goods, decreases production, and causes job losses. The authors propose addressing debt directly through changes to the financial system. They suggest moving away from inflexible debt contracts toward mortgage contracts based on risk-sharing principles, which they argue could have prevented the housing bubble. The book addresses why severe recessions occur, whether the Great Recession was preventable, and what actions are needed to prevent future crises.