A vicious circle can get started: Increasing vacancies together with decreasing tax revenue and consequent cutbacks in services can further depress home prices, putting the goal of neighborhood stabilization even further out of reach. As I mentioned earlier, problems in the housing market have also restrained the broader economic recovery.
To my regret, this reminds me of Liaquat Ahamed’s modern classic Lords of Finance, in which he describes the policymakers and their mistakes in the 1920s and 1930s, and the dramatic collapse of international policy coordination that contributed to the Great Depression and the subsequent Second World War.1 I recall former US Treasury Secretary Tim Geithner saying at the height of the financial crisis that he started reading Ahamed’s book, but had to put it down after a few chapters, because he found it too scary!