Thursday, June 25, 2009

Book Review (#8 of 2009)

The Subprime Solution: How Today's Global Financial Crisis Happened and What to Do about It by Bob Shiller.

Shiller of the S&P/Case-Shiller home price index that's so closely watched. Shiller published this book in mid 2008, before much of the bad stuff happened. The books is very short with very large margins, so it's a quick read. I'll simply link to Ian Ayres review of the book on the Freakonomics blog as he has valid criticisms.

Shiller basically believes that information is the #1 solution for keeping such a crisis from occuring again. The government should basically subsidize financial education, subsidize financial advisers (have them charge a standard hourly fee), etc. Establish national databases of personal and business financial data so that things like FICO scores aren't so important.

He supports the creation of more markets-- home equity insurance, income insurance (in case you lose your job), continuously worked-out mortgages, and an expanded derivatives market (which he helped create) for things like home values in cities.

About the only thing that the Administration seems to have proposed that fits with what Shiller suggested is the sort of "Consumer Lending Safety Commission" that would regulate home loans, credit cards, student loans, etc.

Overall, a good simple economist's view to preventing future crises.

I give it 2.5 stars out of 5. A quick read, you should check it out sometime.

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