Two very very intelligent scholars. They make a clever argument for the cause of the recession that followed the financial crisis back in 2008-2009. While everybody is focused on the deficiencies of the banking system and supply side of credit, these two gentlemen decided to look at the demand side of the story. Among others, an excessive amount of money comes in from abroad at beginning of 2000s. These funds are directed to the housing market as credit for subprime borrowers. New credit triggers a spending spree that results in prices going up. Borrowers borrow even more such as withdrawing home equity loans. When the whole house of cards, I mean, house of debt collapsed, households immediately cut their spending. Aggregate demand was significantly down causing a textbook recession. Meanwhile the policymakers were too busy trying to bail out and fix the banking system. The authors suggest more appropriate solutions that could have reduced the size of the contraction and helped the middle and lower income folks. Great book. Highly recommended.
Two very very intelligent scholars. They make a clever argument for the cause of the recession that followed the financial crisis back in 2008-2009. While everybody is focused on the deficiencies of the banking system and supply side of credit, these two gentlemen decided to look at the demand side of the story. Among others, an excessive amount of money comes in from abroad at beginning of 2000s. These funds are directed to the housing market as credit for subprime borrowers. New credit triggers a spending spree that results in prices going up. Borrowers borrow even more such as withdrawing home equity loans. When the whole house of cards, I mean, house of debt collapsed, households immediately cut their spending. Aggregate demand was significantly down causing a textbook recession. Meanwhile the policymakers were too busy trying to bail out and fix the banking system. The authors suggest more appropriate solutions that could have reduced the size of the contraction and helped the middle and lower income folks. Great book. Highly recommended.
I'm uneducated.