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We propose that the severity of the Depression beginning in 1929, and that of the Great Recession starting in 2007 were twin household-bank balance sheet crises—events that were quite distinguishable from the recessions appearing between them. Each episode, we hypothesize, was preceded by unsustainable rises in expenditures on construction of new housing units and in mortgage credit for purchases of new and existing homes. In both cases housing values rapidly collapsed by over thirty percent but mortgage debt obligations fell only very slowly, so that housing equity fell sharply.


Working Paper 12-25



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