Over the last decade, research by many economists, including us, arrived at a broadly shared narrative of the 2008-2009 financial crisis. As we describe in our new book, A Crisis of Beliefs: Investor Psychology and Financial Fragility, the fundamental cause of the crisis was the deflation of the housing bubble, starting in early 2007. For several years until then, home prices in the United States rose dramatically, fueled by massive borrowing by homebuyers and banks’ investments in mortgages and mortgage-backed securities. As the housing bubble burst, both borrowers and bankers suffered. By mid-2008, banks were ... (full story)