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Response to the financial crisis focus too much on banks but neglecting over-indebted homeowners?

Discussion in 'Economy' started by ethics, Jun 6, 2014.

  1. ethics

    ethics Pomp-Dumpster Staff Member

    The Financial Times has a great piece -- actually a book review -- by Larry Summers (yes, that Summers) and it's saying a very different thing than the traditional blame the banks by the MSM.

    Atif Mian and Amir Sufi’s House of Debt, despite some tough competition, looks likely to be the most important economics book of 2014;

    Meaning, NOT Picketty's anti-Capitalism book.
    Most important statement is right here:

    Mian and Sufi point out a variety of problems with this approach. First, they note 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 has been anaemic since. Second, they observe that spending on housing and durable goods such as furniture and cars decreased sharply in 2006 and 2007, well before any financial institution became vulnerable. Likewise, they note that the initial impetus behind recession in the US appears to have been a decline in consumer spending. Additionally, the authors observe that when asked why they were not borrowing more, even small businesses, the sector most dependent on banks, more often than not blamed a lack of customers rather than banks’ unwillingness to lend.

    In simple terms, if your investment (say your home) goes down by 20%, you will probably be in debt. Being in debt will not have you spend much, which means less customers for businesses, less customers means that businesses won't be going to the banks for loans...

    tke711 likes this.

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