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Book Review: House OF Debt. How They (And You) Caused the Great
Recession, and How We Can Prevent It from Happening Again by Atif Mian
and Amir Sufi

Article  in  SSRN Electronic Journal · January 2019

DOI: 10.2139/ssrn.3424173

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 Book Review: House OF Debt.
How They (and You) Caused the Great Recession,
and How We Can Prevent It from Happening Again
by ATIF MIAN and AMIR SUFI
Sergey Avetisyan∗ †‡1

1
Central Bank of Armenia ,
Economic Research Department
@SergejAvetisyan 7

July 2019

A debt is still unpaid, even if

forgotten.

Irish Proverb

Economic policy since the onset of the financial crisis has been a dismal failure. It’s
true that we have avoided a full replay of the Great Depression. My motivation for writing
this review comes from Hess’s Critical Book Review where he compares Geithner’s Stress
Test and Mian and Sufi’s House of Debt (Figure 1.). I have read both, this review is
about House of Debt by comparing with Stress Test.
Timothy Geithner, who was Treasury secretary, has published a book, “Stress Test,”
about his experiences. Krugman thinks he did a heckuva job. According to Krugman’s
”Springtime for bankers,” policy makers in Europe, where employment has barely recovered
and a number of countries are in fact experiencing Depression-level distress, have even
less to boast about. Yet they are patting themselves on the back.
How can people feel good about track records that are objectively so bad? Partly
it’s normal human tendency to make excuses, to argue that you did the best under that
circumstances. And Mr. Geithner can indeed blame much though not all of what went
wrong on scorched-earth Republican obstructionism.
The story of economic policy has been done by a remarkable double standard since
2008. Bad loans always involve mistakes on both sides — borrowers were irresponsible
to the people who lent them money. But when crisis came, bankers were held harmless
for their errors while families paid full price. Refusing to help families turns out, to be
not just unfair; but also bad economics. Wall Street is back, but America isn’t, and the
double standard is the main reason.

∗ email: avetisyan.sergej@gmail.com, sergey.avetisyan@cba.am

† avetisyansergey.com
‡ This Review should not be reported as representing the views of Central Bank of Armenia. The

views in this Review are those of the author and should not be interpreted as those of Central Bank of
Armenia.

Electronic copy available at: https://ssrn.com/abstract=3424173

 (a) Banking View (b) Household Demand View

Figure 1: Two books with different views on the same issue.

Publication: May 15th, 2014 Publication: May 22nd, 2014

Author: Atif Mian

Institution: Princeton University
Field of Research: Professor of Economics and
Public Policy

Author: Amir Sufi

Author: Timothy F. Geithner Institution: University of Chicago of
Institution: US Secretary of the Treasury Booth School of Business
Time: Jan 2009 - Jan 2013 Field of Research: Professor of Finance

Banking view Household demand view

*Focus on the banking sector *Focus on household debt level

*Freezing up of financial itermediaries as root *Balance sheet recession and drop in aggregate
cause for economic downturn demand as root cause for economic downturn

*Policy implication: *Policy implication:

”Save the banks, save the economy” ”Save the families, save the economy”

House of Debt is divided into three parts and twelve chapters. The three parts are:
Busted, Boil and Bubble, Stopping the Cycle. Part 1: Busted, in which the authors’
views and evidence are provided to explain the Great Recession. Part 2: Boil and Bubble
where authors show suggestions to reject some other ideas and interpret what bubbles are.
Part 3: Stopping the Cycle, in which authors offer some advice to solve primary cause of
financial crisis.
Atif Mian and Amir Sufi’s House of Debt, despite some tough competition, looks likely
to be the most important economics book about debt; it could be the most important book
to come out of the 2008 financial crisis and subsequent Great Recession. Its arguments
deserve careful attention, and its publication provides an opportunity to reconsider policy
choices made in 2009 and 2010 regarding mortgages.
In November 2011, James Surowiecki wrote an article titled ”The Deleveraging Myth”
in his influential New Yorker column, in which he claimed that debt was not main reason,
household spending also collapsed during the Great Recession.
“Stress Test” asserts that no conceivable amount of mortgage debt relief could have

Electronic copy available at: https://ssrn.com/abstract=3424173

 been done to boost the economy. But the leading experts on this subject are the economists
Atif Mian and Amir Sufi, whose book “House of Debt” argues very much the contrary.
On their blog1 , Mr. Mian and Mr. Sufi point out that Mr. Geithner’s arithmetic on the
issue seems weirdly wrong — order of magnitude is wrong — giving much less weight to
the role of debt in holding back spending.
Through a unique and powerful analysis of the Great Recession, Atif Mian and Amir
Sufi establish that the main culprit was the over-indebtedness of households, in contrast
with the dominant view that the problems in the financial intermediaries and the resulting
disruption of credit were at the core.
Their analysis yields a set of novel empirical findings that have solid implications
about the mechanisms leading the economy towards the catastrophe.
This enables the authors to provide a theoretical framework for the researchers that
strive to write models capable of generating recessions such as the latest.
Furthermore, by the same virtue, they manage to provide a valuable evaluation of the
policy responses in the face of the crisis.
The authors conclude that a groundbreaking policy can halp to to avoid similar
recessions in the future: replacement of debt with equity-like instruments that provide a
better sharing of aggregate risk.
The main hypothesis of the book is that the Great Recession can be characterized as
an inevitable outcome of the over-indebtedness of the households, rather than a result of
the difficulties faced by the financial intermediaries and the ensuing paralysis of credit.
The authors name the former view as the “levered-losses view” and the latter as the
“banking view”.
As the latter has been so dominant and by and large shaped the policy responses
hitherto, the argument of the authors is rather controversial. However, they provide
a rich analysis mostly backed by academic research of the highest-tier, as well as by a
proper hint of economic history and anecdotal evidence, which altogether turn out nicely
to work toward putting forward a distinctive but convincing reading of the crisis and the
articulation of the implied policy responses.

References
T. F. Geithner. Stress test: Reflections on financial crises. Broadway Books, 2015.
R. Hess. House of debt: Critical book review. International Politics, Economics and
Business, 07-601-883(Universitat St.Gallen):presentation, December 1˙st 2014.
P. Krugman. Springtime for bankers. New York Times May/18, 2014.

A. Mian and A. Sufi. House of debt: How they (and you) caused the Great Recession,
and how we can prevent it from happening again. University of Chicago Press, 2015.
J. Surowiecki. The financial page: The deleveraging myth. New Yorker, 2011.

1 https://houseofdebt.org

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