Larry Summers critiques new book critiquing policy responses and causes of the deep recession and slow recovery

Very wonkish, but it’s worth checking out Lawrence Summers on ‘House of Debt’ in the FT.

From Summers’ review/critique of the new book House of Debt by Atif Mian and Amir Sufi:

Mian and Sufi, professors at Princeton and the University of Chicago respectively, have examined a profoundly important question: what causes protracted downturns in economic activity? […]

Most in the financial community, the policy community and the commentariat see a breakdown in financial intermediation as the root cause of the financial crisis and Great Recession. […]

None of this sits easily with what Mian and Sufi call the banking view of the Great Recession. They argue that, rather than failing banks, the key culprits in the financial crisis were overly indebted households. […]

[…] they train their fire on policy makers’ failure to take proper account of the levered losses view by providing far more sweeping mortgage relief. They argue that if policy makers had better appreciated their arguments about household balance sheets and been less cognitively captured by banking system concerns, the outcome could have been much better.

The book sounds like a great read, and Summers’ review of it is a fascinating read too.

Summers takes real issue, as he should — to a point, with apparent suggestions in the book that policies like mortgage cram-downs should have been enacted. It both seemed at the time and seems today pretty obvious that that particular policy and other assistance to mortgage holders would have helped the recovery immensely, but the political reality is that such policies did not have sufficient support in Congress or among the American people generally.

At the same time, Summers is — not surprisingly — too vigorous in his own defense. He was a major player in crafting the recovery, after all, and he has a history of downplaying the degree to which he underestimated the scale of the crisis in real time and the degree to which he assumed that further stimulative policies could be enacted later.

I detailed this predisposition in a really wonky post, which was read by even fewer people than will read this one, back in 2011: Larry Summers on the insufficient stimulus.

In any case, I’m looking forward to checking out Mian and Sufi’s book. Having seen so many friends and acquaintances lose vast sums of money because they over-invested in housing and/or took every cent that irresponsible lenders made available to them during the boom years, I’m especially curious to get a sense of the bigger picture of consumer borrowing and debt.