Customer Reviews
Financial Democracy - By: Luc REYNAERT, 08 Nov 2008 
For Prof. R.J. Shiller, the root of the subprime mortgage crisisin the US is a myth, the belief that real estate prices must strongly trend upward for demographic reasons.
He proves that the price of real estate, to the contrary, is trending lower. What went up are the quality & the dimension of the average individual houses. But what about `land'? Didn't Mark Twain recommend strongly: `Go for land. They've stopped producing it.'? R.J. Shiller remarks cleverly that only 2,6 % of US land is used for urbanization.
Another factor of the bubble was psychological: the human herd instinct. There was a social contagion of boom thinking.
A third, more specific, factor was the deliberate governmental policy to promote home-ownership as much as possible. This should be good for the Party.
When the real estate bubble burst, it disrupted immediately the credit markets. Aggressive mortgage lenders never worried about repayment risks. They repackaged the mortgages, got top ratings from the rating agencies & sold their packages to third parties all over the world.
But even more importantly, the crisis damaged the `social fabric', the way of life of millions of families & also human relationships (through aggressive creditors). It created an atmosphere of distrust, of hoarding, with runs on banks;in one word, it gave rise to a psychological environment that could lead to a severe & long depression, which would hurt every citizen. Therefore, the subprime crisis must be solved.
Prof. R.J. Shiller makes a distinction between the short term & the long term solution.
In the short term, there should be a massive bail-outin order to prevent an escalation of the crisis & of the economic downturn.
In the long term, the US government should create a basic social contract & protect every citizen against major misfortune. It should impose financial democracy through standardized full disclosure documents so that everybody should get better information about all the risks involved. Without affecting individual privacy, indicators should be created about the real value of real estate. Those should lead to a more efficient pricing of houses & to a stabilization of the market. Prof. R.J. Shiller did not only recommend these policies, but created an indicator himself.
With an open & clear-sighted mind, Prof. Shiller wrote a small, but essential, book about a dramatic worldwide crisis, without losing the `human touch'. It is an essential read for all those interestedin the future of mankind.
Thoughtful, straightforward diagnosis and prescription - By: Rolf Dobelli, 18 Sep 2008 Robert Shiller, the prescient author of the book Irrational Exuberance, offers an insightful examination of the causes of the subprime mortgage crisis, & suggests a list of potential measures for the future. He lays the blame for the subprime crisis on the same oblivious fiscal attitudes that led to the technology bubble of the 1990s & the real estate bubble of the 2000s. Both bubbles involved excessive lending & resultedin severe losses for capital providers. His prescription for dealing with the crisis involves a range of policy measures. In the short term, he calls for bailouts for low-income borrowers who got drawn into subprime scams that they did not understand. For the long term, he proposes a new framework for financial institutions, more transparent information, simpler contracts, improved risk-management markets, equity insurance & home loans linked to income, among other measures. Both his diagnosis & his prescription will be controversial, no doubt, but getAbstract thinks his book is a necessary text for anyone who wants to understand what's happened, & how to survive it & learn from it.
Short and radical - By: tomsk77, 30 Aug 2008 
Robert Shiller has written some very interesting things over the years. In my opinion Irrational Exuberance is still one of the best books to read about stockmarkets, &in the New Financial Order he set out some new ideas for democratising finance so that it better serves the public. This short book (the previous reviewer is right to say it's more of a pamphlet) draws a bit on the ideas mapped outin the New Financial Order as a way out of the current mess.
To massively over-simplify, Shiller says we need a mix of short-term sticking plasters & longer-term reforms. In respect of the former camp he says we have to accept bailouts as a necessary evil, even though it goes against the moral hazard arguments. he also suggests setting up a revamped Homeowners Loan Corporation which would take on mortgages as collateral for loans to mortgage lendersin return for influencing the form future mortgages take (in order that they offer a better deal to homeowners).
Turning to the longer term Shiller sets out 6 key policies - comprehensive financial advice (based on fees rather than commssions), the establishment of a consumer finance watchdog, the creation of more default financial options (not just pensions, mortgage arrangements could also be included), improved financial disclosure, to improve accountability, the creation of better financial databases which would help provide consumers with better advice & more tailored products, & finally & most radically the creation of new units of economic measurement, based on what things actually cost.
There are big plus points about this book. First, Shiller is willing to think big. he's effectively arguing for more financial innovation, not less, but also that the process should be carried outin a way that meets the needs of the public. Secondly he warns against scapegoating the financial sector. In the epilogue he argues that we should be focusing on the systems that went wrong, rather than seeking to punish the industry as a whole. As tempting as it might be to try to stick the boot into the super-richin the City, that isn't really going to take us very far. Shiller instead is setting out some challenging ideas for how we might stop this kind of crisis arising again.
an essential handbook for bubble spotters - By: T. J. Penn, 05 Aug 2008 Shiller's is a concise attempt to elaboratein just seven chapters the genesis of the housing bubble (a psychological carry-over from the dotcom bubble), explode its myths ("prices always go up"), explore its scale & the dangers of its deepening impact (it's bad), assert the need to maintain confidencein our economic & financial institutions by aggressive action (comparing the US & European responses to the Great Depression), & then explore longer-term, more fundamental reforms & innovations that will create a population much more attuned to economic risk.
Shiller says his inspiration was John Maynard Keynes 'The Economic Consequences of the Peace', which I take to mean that getting the subprime solution wrong could have devastating consequences.
At less than 200 pages of wide-margined type, lightly annotated & with no bibliography, there is something of the emergency pamphlet about this book. And Shiller is advocating a much speedier & more deep-rooted response to the crisis, which, as of a few weeks ago, he felt was still not being taken seriously enough.
There are many recommendations, but if the scale of the problem is as suggested, I'd argue that it's a book that everyone who livesin a house (and who is of reading age) should own; just don't buy ten & try to rent them out.
The Knackered Hack
