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| The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It | 
 enlarge | Author: Robert J. Shiller
Publisher: Princeton University Press
Category: Book
List Price: $16.95
Buy New: $10.45
You Save: $6.50 (38%)
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Avg. Customer Rating:  (11 reviews)
Sales Rank: 326
Languages: German (Original Language), English (Unknown), English (Published)
Media: Hardcover
Number Of Items: 1
Pages: 208
Shipping Weight (lbs): 0.9
Dimensions (in): 8.5 x 5.8 x 1
ISBN: 0691139296
Dewey Decimal Number: 332.722
EAN: 9780691139296
ASIN: 0691139296
Publication Date: August 24, 2008
Availability: Usually ships in 1-2 business days
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| Editorial Reviews:
Product Description
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.
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| Customer Reviews: Read 6 more reviews...
 subprime solution October 6, 2008
Now is the time for everyone to read this book. Mr. Shiller clearly outlines how we arrived in our current financial situation. If you want to understand how this happened and what to do , read this book!
A fine and concise summary of the subprime crisis October 5, 2008
This is an excellent summary of the recent events, and most of its underlying causes. Although readers with an economics background may find its conclusions debatable - and may therefore refer to other works, it is undeniable that Schiller's piece is well framed and thought provoking. On its recommendations, I would advise to reflect about the underlying principles that he is focusing on when making those: he is focusing on the lack of ability of the general public to understand and manage the price volatility that real state assets are subject to.
Three stars for the layman but only one for those with academic/professional backgrounds in the subject October 2, 2008
1 out of 2 found this review helpful
In terms of the value, this book would rate three stars for the layman but only 1 for those knowledgeable in the field.
During the first approximately 100 pages of this 180 page book, Schiller describes what lead to this debacle and draws analogies between the current situation and past in both the U.S. (i.e., events leading to the Depression, the Savings and Loan crisis leading to the formation of the Resolution Trust Company, etc.) and overseas (i.e., the 1990s bubble bursting in Japan and the Swedish banking sector crises of the 20 years ago). What he describes should be well known by anyone who has had an undergraduate course in U.S. Economic history, reads a sophisticated financial newspaper or magazine (i.e., Financial Times or Economist) and/or is a financial professional. Hence for this group the first 100 pages would have very little value. For layman without this background, however, this knowledge would provide good perspective.
Where the book really is weak, though, is the remaining 80 pages where Schiller provides his "solution(s)". This is what he calls the "democratization" of the financial market. The important points of this consist of:
a) The provision of financial advice to "the masses" through subsidized professional financial advice.
b) Adding more "bite" to government regulatory bodies (i.e., SEC).
c) the creation and utilization of financial instruments that provide insurance against fluctuations in home prices, economic conditions and peraonal economic conditions (i.e., unemployment). Examples of such financial instruments provided by Schiller include options and futures indexed to housing prices, Government debt instruments that are counter cyclical and instruments that provide the ability to hedge against personal financial circumstances.
Each of the above need to be examined in detail. With respect to the first, it seems highly unlikely that high quality professional financial advisement services that are unbiased (i.e., don't provide advise geared to selling financial products that do not necessarily coorespond to individuals' econommic situations as opposed to the commissions of the financial advisors) can be provided at a cost effective price that even the lower income ranks can afford. Any such labor intensive service can only be provided (in general), cost effectively, by those with limited educations and/or poorly trained backgrounds. A good analogy would be going to H&R Block. You pay relatively little there but you end up with high school graduates who, in general, have very limited qualifications. The end result would be mediocre advise. In a recent article in the New York Times the IRS was quoted as stating that 2/3 of tax forms prepared by tax preperation firms had contained errors. If these firms cannot succeed in providing relatively simple tax assistance how can they provide more complicated financial advise on how to hedge home, retirement and other assets? Even if they were all highly qualified this would still be a problem. The events leading to the current bubble bursting, as well as those of the late 1990s, caught many highly educated professionals such as Alan Greenspan and Bernanke by surprise. If they failed how can the less qualified be expected to perform better? This simply does not seem logical.
With respect to Schiller's recommendation to beef up government regulatory agencies such as the SEC, this would seem the most feasible of all. SEC funding can be increased, penalties increased, and litigation can be loosened to permit an increased deterance of corporate mafleasance by accounting, investment banks and other financial institutions. This recommendation is very realistic.
Schiller's third recommendation, the utilization of financial instruments to mitigate against fluctuations in housing prices and individual economic circumstances, sounds very nice theoretically but is hard to achieve in reality. With respect to housing price fluctuations, options futures on housing prices can be used (they already exist) but they require extensive knowledge in finance and they are relatively expensive to purchase when housing prices are on the decline (when they are needed most). Hence not a solution that seems very practical beyond homebuidling conglomerates. But even they did not make very extensive use of them.
With respect to financial instruments that can be used to mitigate against individuals' economic fluctuations (i.e., unemployment) there are other problems. First they do not exist. Secondly, even if they did (and why they are not provided by the private sector to begin with), there would be to much of a problem relating to moral hazard. Individuals can purchase such insurance then either intentionally put themselves out of work or not do enough to prevent unemployment. If one has insurance against all (or nearly all) income losses stemming from unemployment the incentive would greatly decrease to take steps to prevent unemployment.
In short, only Schiller's recomendation to beef up regulatory agencies seem realistic and feasible (at least in the foreseable future).
 Disappointing, esp. from Shiller September 24, 2008
1 out of 3 found this review helpful
I got the impression that this book was thrown together, in part from earlier published work, to catch the wave of public interest in the subprime meltdown. Much of the content seemed just odd and unrealistic, and Shiller's etymology for "bailout" is ludicrous. (Has he never heard of bailing out a water-filled boat? Or used an American dictionary in preference to the OED? Bailout, in reference to a financial rescue, has been flagged as an Americanism for decades in Webster's New World Dictionary, College Ed.)
His solutions seem too academic, airy, and remote to be of much practical interest to anyone but another academic. I expected better from the author of the wonderful Irrational Exuberance.
Mercifully, it is short and for the most part well written, even if some sections (for example the treatment of the "basket" as an inflation adjusted currency) are befuddling (to this layman, at least).
Thoughtful, straightforward diagnosis and prescription September 18, 2008
5 out of 7 found this review helpful
Robert Shiller, the prescient author of the book Irrational Exuberance, offers an insightful examination of the causes of the subprime mortgage crisis, and 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 and the real estate bubble of the 2000s. Both bubbles involved excessive lending and resulted in 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 and home loans linked to income, among other measures. Both his diagnosis and 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, and how to survive it and learn from it.
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