The subprime mortgage crisis has already wreaked havoc on the lives of millions of people and now it threatens to derail the U.S. economy and economies around the world. In this trenchant book, best-selling economist Robert Shiller reveals the origins of this crisis and puts forward bold measures to solve it. He calls for an aggressive response--a restructuring of the institutional foundations of the financial system that will not only allow people once again to buy and sell homes with confidence, but will create the conditions for greater prosperity in America and throughout the deeply interconnected world economy.
Shiller blames the subprime crisis on the irrational exuberance that drove the economy's two most recent bubbles--in stocks in the 1990s and in housing between 2000 and 2007. He shows how these bubbles led to the dangerous overextension of credit now resulting in foreclosures, bankruptcies, and write-offs, as well as a global credit crunch. To restore confidence in the markets, Shiller argues, bailouts are needed in the short run. But he insists that these bailouts must be targeted at low-income victims of subprime deals. In the longer term, the subprime solution will require leaders to revamp the financial framework by deploying an ambitious package of initiatives to inhibit the formation of bubbles and limit risks, including better financial information; simplified legal contracts and regulations; expanded markets for managing risks; home equity insurance policies; income-linked home loans; and new measures to protect consumers against hidden inflationary effects.
This powerful book is essential reading for anyone who wants to understand how we got into the subprime mess--and how we can get out.
Robert J. Shiller is the best-selling author of Irrational Exuberance and The New Financial Order (both Princeton), among other books. He is the Arthur M. Okun Professor of Economics at Yale University.
"One man who does have some ideas is the Yale economist Robert Shiller, who would merit attention if only for the fact that he predicting the bursting of the Internet bubble, in 2000, with his book Irrational Exuberance, then discussed at length the dangers of systematic risk in his next, The New Financial Order. Now, in The Subprime Solution--published in August, after the start of the meltdown, but before the full scale of the disaster had become manifest--he comes up with a set of startlingly counterintuitive suggestions about what to do next."--John Lanchester, The New Yorker
"With The Subprime Solution, Robert J. Shiller offers his formula to protect us from repeating such disasters: more financial engineering. It would be easy to sneer at this idea, but Mr. Shiller, an economics professor at Yale University, always deserves a hearing. . . . In what he describes as a 'brief manifesto,' Mr. Shiller argues that bailouts of distressed borrowers are inevitable to avoid wrecking our economy and shredding our social fabric--even though bailouts may punish the prudent (say, through higher taxes) while comforting those who gambled on real estate and lost."--James R. Hagerty, Wall Street Journal
"Irrational exuberance, or the 'social contagion of boom thinking,' is . . . the subject of Shiller's new book, The Subprime Solution, a slim but valuable addition to the growing literature on the ongoing collapse of the housing market."--Max Fraser, The Nation
"[The Subprime Solution is] a lucid primer on how we slipped into this money pit and what it might take to clamber out of it. . . . Shiller is sometimes called a Cassandra, and his prophesies about the dot-com and housing bubbles did come true. Yet in these pages he sounds more like a visionary optimist who considers today's emergency to be a grand opportunity."--James Pressley, Bloomberg News
Table of Contents:
Chapter 1: Introduction 1
Chapter 2: Housing in History 29
Chapter 3: Bubble Trouble 39
Chapter 4: The Real Estate Myth 69
Chapter 5: A Bailout by Any Other Name 87
Chapter 6: The Promise of Financial Democracy 115
Chapter 7: Epilogue 171
This book has been translated into:
- Chinese (Simplified)
Other Princeton books authored or coauthored by Robert J. Shiller: