Debt Spiral: How Credit Failed Capitalism
by Mr. Martin E. Lowy (Marty) '61
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Public Policy Press; 2009; 353 pp.
Genre: Non-fiction
Category: Business, Economics
Additional Information - Library Catalog

Debt Spiral is the history of the economic crisis of 2007-2009.

Part I presents the historical background leading up to 2007. It covers banks, mortgage lending, the Federal Reserve Board, Government subsidies for housing (including Fannie Mae, Freddie Mac and the Community Reinvestment Act), financial deregulation, the rise and mechanics of securitization, the role of the credit rating agencies, and the manias of the regional booms in California, Nevada, Arizona, and Florida.

Part II tells the story of how the crisis unfolded in 2007-2008. It includes thumbnail sketches of the major companies that failed and an analysis of the Government's interventions. It shows how the Government misunderstood the nature of the crisis and therefore was behind the curve from the beginning.

Part III, called Taming the Debt Spiral, analyzes the causes of the crisis. It discusses the various theories that have been advanced. It concludes that to avoid the manic-depressive booms and busts in the economy, Government subsidies for debt should be sharply reduced. Eliminating the subsidies will have several beneficial effects: It will reduce the size of the banks; it will promote an economy based on saving and equity investment; and it will dampen the swings of the business cycle instead of amplifying them.