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The risk sharing model would reduce the amplitude of the housing cycle and its associated risk.

And it would redistribute risk away from the people least able to bear it.

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To be fair, that same leverage amplifies the homeowner's gains in a rising market which we, mistakenly, tend to think is the only kind there is.

Because borrowers tend to spend more of their income than savers do, when they have to tighten their belts the spillover effect on consumption and economic activity is greater than it would be if the downside risk was more symmetrical.

Even though a mortgage is a contract between two willing parties, there is a big asymmetry in the downside risk.

If the value of the house against which the loan is secured falls, the borrower's equity takes the hit and it is not until all of that equity is wiped out that the lender is exposed to loss.

The trouble with that is that "creditors" in this case include depositors who have entrusted their hard-earned savings to a bank.

The prospect of taking a haircut on their deposits, in the event of the Reserve Bank's "bail-in" model of open bank resolution to a bank in trouble, is liable to come as an unwelcome surprise.

"Economic disasters are almost always preceded by a large increase in household debt," Mian and his co-author Amir Sufi write.

"In fact the correlation is so robust that it is as close to an empirical law as it gets in macro-economics." Between 20, US household debt doubled to trillion and the household debt-to-income ratio rose from 140 to 210 per cent.

The borrower's equity falls in dollar terms but is not wiped out, and the impact on spending and the broader economy is mitigated. Clearly, lenders have to be compensated for holding that additional risk.

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