I picked up in "The Subprime Solution" after hearing Shiller on a Bloomberg Radio podcast.
In his first chapter, Shiller alludes to the Case-Shiller index, which he helped create. Shiller is a believer in the power of information flow through markets to create more efficient and stable outcomes.
I have to say I found his prescriptions unconvincing. One thing they assume is that consumer education will somehow create more rational outcomes. I think his read of human behavior is over-simple and optimistic. Further, it wasn't clear that his idea of efficient futures markets for housing prices would have any effect in mitigating a bubble. It should be noted that there were short sellers in the current real estate market, but that they made a lot of their money shorting banks, not housing. The problem with the futures market is that is has no tie-back to reality. A futures market in winter wheat, for example, is connected to the actual market for winter wheat via physical delivery. Even if this forms only a small faction of the actual volume, it is enough to make the futures market an important pricing mechanism. No analogous feature exists for housing.
This is a well-written account of how markets went wrong with a few interesting ideas, but in the end, his solutions are relatively unconvincing. ( )
In his first chapter, Shiller alludes to the Case-Shiller index, which he helped create. Shiller is a believer in the power of information flow through markets to create more efficient and stable outcomes.
I have to say I found his prescriptions unconvincing. One thing they assume is that consumer education will somehow create more rational outcomes. I think his read of human behavior is over-simple and optimistic. Further, it wasn't clear that his idea of efficient futures markets for housing prices would have any effect in mitigating a bubble. It should be noted that there were short sellers in the current real estate market, but that they made a lot of their money shorting banks, not housing. The problem with the futures market is that is has no tie-back to reality. A futures market in winter wheat, for example, is connected to the actual market for winter wheat via physical delivery. Even if this forms only a small faction of the actual volume, it is enough to make the futures market an important pricing mechanism. No analogous feature exists for housing.
This is a well-written account of how markets went wrong with a few interesting ideas, but in the end, his solutions are relatively unconvincing. (