House of Debt

Recessions are caused due to high consumer debt, low household/consumer spending and increased job losses.

Borrow less than your actual income

Interest payments flow from poor to the rich, so when borrowing money from bank, any losses or asset value depreciation are absorbed first by junior claim (aka you) and then by senior claims (aka bank).

Foreclosure or defaulting on payments leads to bank selling asset at a discounted price which means impact on economy as this will cause other people housing value to depreciate.

Rich people borrow less, they try to keep their to debt-to-asset ratio to 10:90, allowing them to be impacted less during economic downturn.

Defaulting on payments, will trigger shock response, which means due to reduced asset value, common man cuts its spending, thus leading to reduced demands, triggering increased job losses.

Don't grant loans to people who can't afford them.

Mortgage backed securities are those that a government buys from local banks, combines multiple such securities and the sells it to investors for a cut of pooled interest and principal amount.

Private label MBS make use of Mortgage pools that leverage tranching a strategy that allows creating mortgage pools with multiple layers comprising of mortgages from super-safe senior to lower high-risk.

This misled investors of actual risks involved and led to degraded lending standards.

Private label MBS didn't require any proof of income.

There are two types of classification of loans in private-label MBS, owner-occupier and investor-owned, owner-occupier are considered less risky and are seemingly more attractive. One of the prominent reasons that led to crisis was 10% of these loans were misclassified as owner-occupier.

Loans are asset to banks, when people default on loans, these assets suffer, bailouts can only help to very limited extent.

Debt forgiveness can help prevent going into viscious circle where prices of goods is decreased but so is the capability to make payments which leads to extended lifetime of recession.

Asking for Debt forgiveness helps us prevent from going into negative equity (when you owe more than you assets actual value) by reducing overall interests on the initial loan amount.

Shared Risk Mortgage is more equity than debt; here borrower shares capital gains on asset with lender and lender protects borrower by offering constant mortgage payments in case of prices increase, reduced mortgage payments in case price of asset decrease by tying it to local housing index; thus leading to protection against negative equity, reduced net-worth, promoting higher consumer spending, reduced job losses across the economy, avoiding foreclosure.