Friday, May 23, 2014


They are really tough to kill and that's why I'm posting this article about the Great Recession.
It Wasn't Household Debt That Caused the Great Recession
It was how that debt was disproportionately distributed to America’s most economically fragile communities.
Heather Boushey May 21 2014, 2:25 PM ET

Princeton University professor Atif Mian and University of Chicago Booth School of Business professor Amir Sufi pin the blame squarely on policymakers, but not for any of these three reasons, all of which are variously popular with policymakers on different sides of the political divide in Washington. Instead, in their just-released book, House of Debt, they argue that the Great Recession was the result of a sharp fall-off in consumption due to the unevenly accumulated household debt in the first six years of the 21st century.

How did this happen? Why did lenders suddenly shower less-creditworthy borrowers with trillions of dollars of credit? Mian and Sufi demonstrate this was enabled by the securitization of home mortgages by investment banks that did not seek federal guarantees from Fannie and Freddie—so called private-label securities, made possible by financial deregulation and the glut of cash in world markets in the wake of the Asian financial crisis of the late 1990s.

After the Asian financial crisis in 1997, investors were looking for safe havens to park their money. What they wanted were AAA-rated bonds. What they got were mortgage-backed securities that were rated AAA but turned out to be junk.

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