The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do about It

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Overview

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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Editorial Reviews

Wall Street Journal
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
Bloomberg News
[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
Newsweek.com
In The Subprime Solution, [Shiller] briskly sketches out his views on both short-term and long-term strategies for dealing with a housing meltdown that's left millions of Americans a lot less wealthy—and an unfortunate number at risk for losing their homes. . . . The book's most compelling discussion centers on the long-term opportunities that lie in this crisis. Shiller describes how key parts of America's financial system—the Federal Reserve, the Securities and Exchange Commission, and the FDIC, to name only three—were created in the reforms after earlier bank crises or the Great Depression. . . . Shiller suggests that political leaders should look at the current crisis as an opportunity to rethink the homebuying process and add new protections to keep homeowners from getting in over their heads during a future bubble.
— Daniel McGinn
Forbes.com
In [The Subprime Solution], he provides the ignoramuses on Wall Street, asleep-at-the-switch regulators and dumbfounded investors worried about their savings with a stark insight to digest over the last two weeks of summer: 'We as a society do not understand or know how to deal with speculative bubbles.'
— Robert Lenzner
Financial Times
Yale University's Robert Shiller is one of the world's outstanding economic thinkers and intellectual innovators, with a record of foresight that is the envy of his profession. . . . His short, snappy and surprisingly far-reaching book on the subprime crisis is as interesting and indispensible as you would expect. . . . The Subprime Solution is an ambitious little volume. . . . It covers a remarkable amount of ground in less than 200 pages. . . . . [T]he book's broad framing of the issues is novel and valuable, and its arguments are always stimulating. . . . Shiller . . . is an ardent financial-technology optimist, and his book is a torrent of fascinating ideas. Anybody interested in the subject must profit from reading it.
— Clive Crook
BusinessWeek
In his new book, The Subprime Solution, the Yale University professor sounds an alarm that the credit crunch, now early in its second year, poses a dire risk. His text is a stimulating, rapid response to current events—and a forceful demand for dramatic action from Washington, where, he says, the White House and Congress have been 'totally inadequate' to the task. . . . [A] storehouse of valuable, provocative ideas awaits the reader of The Subprime Solution.
— Christopher Farrell
Time
In The Subprime Solution, he argues that what united the missteps by the Federal Reserve, mortgage brokers, Wall Street bankers, and home buyers that together brought on the current financial mess was a shared belief that house prices never go down. What's the antidote to that kind of mass delusion? Shiller seems to have no interest in substituting his judgment, or the government's, for the market's. Instead, he sees information and innovation as the counter to group think.
— Justin Fox
Austin American-Statesman
American optimism: Is there any investment bubble it can't fuel? Consider the excesses of the housing market, the effects of which are roiling the global economy. As Yale University economist Robert Shiller demonstrates in his short, whip-smart new book The Subprime Solution, there was a contagion at work that helped pushed home prices to unsustainable levels. . . . Shiller's views are grounded in exhaustive research and penetrating analysis. The Subprime Solution should be read by anyone with assets at risk in the global financial crisis and a desire to fix things ahead of the next crisis. Which is to say, all of us.
— Robert Elder
Fund Strategy
[The Subprime Solution] is short, punchy and political. Shiller is a top-flight academic economist who has often warned of the tendency of markets towards irrational exuberance, and of the harmful consequences that follow. He is rightly scathing towards the 'boosters' who kept assuring us that house prices only rise, and he gains authority for having spoken out during the boom, when it was an unpopular position to hold. . . . Shiller's debunking of house price myths is masterful. Especially important is his rubbishing of the concept of scarcity . . . Shiller's explanations are sophisticated and intelligent, and they are also admirably clear.
— Michael Savage
New York Observer
The Subprime Solution, his postmortem on irrational exuberance in the real estate market, is superb, even for general-interest readers otherwise confused by the whole mess. Though his introduction reads a bit like an arid position paper, his insistence on the fundamentally psychological, rather than economic, basis of the boom is supple and fascinating.
— Andrew Rosenblum
McClatchy Newspapers
Like the financial bubble in technology stocks that exploded in 2000, real estate investors acted on unrealistic assumptions that prices could only go up. In the aftermath, Shiller's recommendation to policy makers is 'Mend It, Don't End It.' He advises regulatory modifications and greater financial disclosure from all players in the complex mortgage-banking process.
— Kevin G. Hall
Fortune
In his now-famous 2005 book, Irrational Exuberance, Second Edition, Yale professor and economist Robert Shiller predicted a boom and bust in real estate would have terrifying global ramifications. He was mocked by realtors, but global bank failures and the bailout of Fannie Mae and Freddie Mac have proved him dead on. Now Shiller strikes again with The Subprime Solution, his suggestion for sweeping economic reform to get us out of this mess.
— Katie Benner
Kiplinger's
In his latest book, The Subprime Solution, he briefly but deftly dissects how easy credit, lack of government oversight and human behavior allowed the subprime bubble to inflate. Shiller's understanding of human behavior is the book's genius, both in the diagnosis and the proposed cures.
— Robert Frick
Milwaukee Journal-Sentinel
For a closer examination of the crisis, there's The Subprime Solution by Yale University economist Robert J. Shiller, the bestselling author of Irrational Exuberance. In his new book, Shiller focuses more tightly on the stock market bubble of the 1990s and the housing bubble of the last seven years, which led lenders to loosen requirements for loans and resell these questionable loans in the subprime market. He shows how the bubble, when overheated housing prices cooled and asset values fell, burst and led directly to the subprime mortgage crisis that torpedoed the credit markets and with them stock markets worldwide.
— Geeta Sharma-Jensen
Choice
In this slim volume, Shiller not only describes the problem but also places equal emphasis on various proposals to correct it. Rather than viewing the subprime meltdown and credit contraction as a handwringing crisis, he sees it as an opportunity to initiate institutional reforms that will ensure against repeat failures and extend opportunities for home ownership. . . . An important, timely book.
— E.L. Whalen
Montreal Gazette
Reading Shiller also makes me optimistic. Ever the contrarian, he's convinced that, used properly, the new financial technologies that have such a bad name right now will make us all much better off in the long run. In particular, he's working on ways ordinary folk can get out from under the now standard but truly bizarre investment custom in which most of us sink most of our net worth into a single piece of real estate. What kind of sensible diversification is that? What Shiller proposes is the market-led 'democratization of finance.' Coming from anyone else you'd think it was a scam. But read his book and you'll end up feeling strangely optimistic, despite the enveloping gloom.
— William Watson
Fredricksburg Free Lance-Star
The Subprime Solution is an easy read at less than 200 pages. People seeking to understand the cause of the housing bubble, and those wanting to consider short- and long-term solutions would be well-served reading it.
— Bill Freehling
Newsweek
In The Subprime Solution, which he wrote just as the system was beginning to implode, he says that what is needed now is the next stage of financial innovation, not constriction. . . .He also sees government intervention as vital to channel animal spirits and innovation. . . .In essence, Shiller is laying the intellectual groundwork for the next financial revolution.
— Zachary Karabell
Foreign Affairs
The book is not so much an analysis of the subprime crisis as an essay that ruminates on the genesis and evolution of financial bubbles in general and housing bubbles in particular. Shiller believes correctly that economists, in their emphasis on rational decision-making, have confused desired outcomes with actual outcomes—and have paid far too little attention to the reality of swings in social sentiments that can move market prices far from sustainable levels.
— Richard N. Cooper
David Leonhardt
Identifying the causes of the college dropout crisis matters enormously, and [Crossing the Finish Line] tries to do precisely that. . . . For all the book's alarming statistics, its message is ultimately uplifting--or at least invigorating. . . . Crossing the Finish Line makes it clear that we can do better.
—New York Times
Devorah Bennu
Crossing the Finish Line serves as a wake-up call to educators and administrators, and provides valuable data that will help universities to invest their resources in nurturing the talents of all their students. It also provides a disturbing glimpse of the far-reaching effects of limited expectations and diminished educational opportunities.
—Nature
The New Yorker
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 Nation
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 Globe & Mail
Robert J. Shiller explains how trillions of dollars of mortgage debt, based on dubious loans to doubtful borrowers, were forfeited and how it can be fixed. An influential economist, he offers insights into the growth of the credit bubble and solutions for curing the ensuing chaos. . . . Shiller's reputation in economics, his majestic prose style, his statistical proofs and his vast coterie of admirers suggest that at least some of his recommendations will become part of U.S. mortgage regulation. . . . For those who want to figure out how to fix the global credit crisis that has developed as a result of Americans' inability or unwillingness to read their mortgage contracts, The Subprime Solution is vital reading. It is advocacy built on faith that government does good, that intervention never produces unintended results and that there is no other way to fix the mortgage mess.
— Andrew Allentuck
The Telegraph
Robert J. Shiller's clear-eyed look at what happened in the U.S. housing market—and what might be done about it—is not keen to attribute blame to the actors in the drama. He explains that the development of subprime mortgages in the Nineties was welcomed as a way of extending home ownership to those once locked out of the market, and it was not the dishonesty of the mortgage lenders, or the greed of bankers, that led to the bubble. There was dishonesty and greed, but these were the result of the bubble, not its cause.
— Tim Worstall
The Register
Robert Shiller's got an argument that will make some peoples' heads explode in his new book The Subprime Solution—we need more speculation in the housing market. . . . I said above that this solution will make some peoples' heads explode, that the solution to an excess of speculation is to create a market in yet more speculation. Yet in this case ti is indeed true, this is a valid solution.
— Tim Worstall
The Knackered Hack
If you're unfamiliar with Robert Shiller then understand that he is perhaps the most eminent and considered examiner of modern investment bubbles. . . . Shiller's new book, The Subprime Solution, is a concise attempt to elaborate in just seven short chapters the genesis of the housing bubble, explode its myths, explore its scale and the dangers of its deepening impact, assert the need to maintain confidence in our economic and financial institutions by aggressive action, and then explore longer-term, more fundamental reforms and innovations that will create a population much more attuned to economic risk.... There are many more recommendations, but if this book has the ambition of Keynes' earlier work, and the scale of the problem is as suggested, I'd argue that the book is as accessible as you are going to get from such a modern behavioural economics guru. It's a book that everyone who lives in a house should own; just don't buy ten and try to rent them out to friends.
The Investor
While initially providing a short and concise understanding of the subprime fiasco, Shiller goes on to investigate the various financial collapses over the years and the history of recent housing arrangements, searching for clues that might inspire a universal remedy to our current predicament. . . . Along the way, the narrative, which skips along without being fussy or intrusive, also emphasises the characteristics, psychology and lifespan of the bubble—be it financial, IT or housing—and how the way we've changed the way we think 'is the deepest cause' of the current variant of the malignancy.
— Paul O'Doherty
The Sacramento Bee
[Shiller] offers a primer on the history of home prices, roots of subprime lending and a road map of what to do now. The book is at its best when explaining how so few in authority imagined what has come to pass. Shiller says they were filled with same housing boom faith held by the public.
— Jim Wasserman
The Business Economist
This is an important book from a distinguished academic. . . . The book offers a coherent alternative to policy makers. They should consider its recommendations very seriously.
— Shamik Dhar
danpink.com
[I]t's an interesting book. . . . [S]hiller convinced me . . . that bailing out banks and borrowers who've been clobbered might be the right thing to do.
— Dan Pink
Journal of Property Investment & Finance
[T]his is an exciting book that is to be read under the current market condition. It provides us some hope of correcting the existing problems, so as to have a brighter future.
— Ye Xu
Eastern Economic Journal
Policymakers, and students of financial history, money and macroeconomics, will find much of value in Shiller's assessment of the subprime debacle."
— Oscar T. Brookins
The New Yorker - John Lanchester
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.
Wall Street Journal - James R. Hagerty
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.
The Nation - Max Fraser
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.
Bloomberg News - James Pressley
[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.
Newsweek.com - Daniel McGinn
In The Subprime Solution, [Shiller] briskly sketches out his views on both short-term and long-term strategies for dealing with a housing meltdown that's left millions of Americans a lot less wealthy—and an unfortunate number at risk for losing their homes. . . . The book's most compelling discussion centers on the long-term opportunities that lie in this crisis. Shiller describes how key parts of America's financial system—the Federal Reserve, the Securities and Exchange Commission, and the FDIC, to name only three—were created in the reforms after earlier bank crises or the Great Depression. . . . Shiller suggests that political leaders should look at the current crisis as an opportunity to rethink the homebuying process and add new protections to keep homeowners from getting in over their heads during a future bubble.
Forbes.com - Arvind Subramanian
What sets Shiller apart—brilliantly apart—from other analysts of the housing bubble are the sharpness of his diagnoses and the creativity of his solutions. These are the core of his excellent new book, The Subprime Solution. . . . [A] brilliant and radical—but not implausible—perspective on putting the Humpty Dumpty that is American finance together again.
Financial Times - Clive Crook
Yale University's Robert Shiller is one of the world's outstanding economic thinkers and intellectual innovators, with a record of foresight that is the envy of his profession. . . . His short, snappy and surprisingly far-reaching book on the subprime crisis is as interesting and indispensible as you would expect. . . . The Subprime Solution is an ambitious little volume. . . . It covers a remarkable amount of ground in less than 200 pages. . . . . [T]he book's broad framing of the issues is novel and valuable, and its arguments are always stimulating. . . . Shiller . . . is an ardent financial-technology optimist, and his book is a torrent of fascinating ideas. Anybody interested in the subject must profit from reading it.
The Globe & Mail - Andrew Allentuck
Robert J. Shiller explains how trillions of dollars of mortgage debt, based on dubious loans to doubtful borrowers, were forfeited and how it can be fixed. An influential economist, he offers insights into the growth of the credit bubble and solutions for curing the ensuing chaos. . . . Shiller's reputation in economics, his majestic prose style, his statistical proofs and his vast coterie of admirers suggest that at least some of his recommendations will become part of U.S. mortgage regulation. . . . For those who want to figure out how to fix the global credit crisis that has developed as a result of Americans' inability or unwillingness to read their mortgage contracts, The Subprime Solution is vital reading. It is advocacy built on faith that government does good, that intervention never produces unintended results and that there is no other way to fix the mortgage mess.
BusinessWeek - Christopher Farrell
In his new book, The Subprime Solution, the Yale University professor sounds an alarm that the credit crunch, now early in its second year, poses a dire risk. His text is a stimulating, rapid response to current events—and a forceful demand for dramatic action from Washington, where, he says, the White House and Congress have been 'totally inadequate' to the task. . . . [A] storehouse of valuable, provocative ideas awaits the reader of The Subprime Solution.
Time - Justin Fox
In The Subprime Solution, he argues that what united the missteps by the Federal Reserve, mortgage brokers, Wall Street bankers, and home buyers that together brought on the current financial mess was a shared belief that house prices never go down. What's the antidote to that kind of mass delusion? Shiller seems to have no interest in substituting his judgment, or the government's, for the market's. Instead, he sees information and innovation as the counter to group think.
The Telegraph - Tim Worstall
Robert Shiller's got an argument that will make some peoples' heads explode in his new book The Subprime Solution—we need more speculation in the housing market. . . . I said above that this solution will make some peoples' heads explode, that the solution to an excess of speculation is to create a market in yet more speculation. Yet in this case ti is indeed true, this is a valid solution.
Austin American-Statesman - Robert Elder
American optimism: Is there any investment bubble it can't fuel? Consider the excesses of the housing market, the effects of which are roiling the global economy. As Yale University economist Robert Shiller demonstrates in his short, whip-smart new book The Subprime Solution, there was a contagion at work that helped pushed home prices to unsustainable levels. . . . Shiller's views are grounded in exhaustive research and penetrating analysis. The Subprime Solution should be read by anyone with assets at risk in the global financial crisis and a desire to fix things ahead of the next crisis. Which is to say, all of us.
Fund Strategy - Michael Savage
[The Subprime Solution] is short, punchy and political. Shiller is a top-flight academic economist who has often warned of the tendency of markets towards irrational exuberance, and of the harmful consequences that follow. He is rightly scathing towards the 'boosters' who kept assuring us that house prices only rise, and he gains authority for having spoken out during the boom, when it was an unpopular position to hold. . . . Shiller's debunking of house price myths is masterful. Especially important is his rubbishing of the concept of scarcity . . . Shiller's explanations are sophisticated and intelligent, and they are also admirably clear.
New York Observer - Andrew Rosenblum
The Subprime Solution, his postmortem on irrational exuberance in the real estate market, is superb, even for general-interest readers otherwise confused by the whole mess. Though his introduction reads a bit like an arid position paper, his insistence on the fundamentally psychological, rather than economic, basis of the boom is supple and fascinating.
TheStreet.com - John Fout
In his latest work, The Subprime Solution, Shiller explains that greater financial 'democracy' and a 'contagion of ideas' led many to conclude a 'new era' had been reached in real estate. The public expected prices to rise continually. Worse, Shiller wrote: 'The very people responsible for oversight were caught up in the same high expectations for future prices.'. . . Shiller's The Subprime Solution is well worth the read for individuals and private enterprise looking to understand current real estate bubble. It should be required reading for public policy makers who need to take immediate action to solve the subprime crisis.
McClatchy Newspapers - Kevin G. Hall
Like the financial bubble in technology stocks that exploded in 2000, real estate investors acted on unrealistic assumptions that prices could only go up. In the aftermath, Shiller's recommendation to policy makers is 'Mend It, Don't End It.' He advises regulatory modifications and greater financial disclosure from all players in the complex mortgage-banking process.
Forbes.com - Robert Lenzner
In [The Subprime Solution], he provides the ignoramuses on Wall Street, asleep-at-the-switch regulators and dumbfounded investors worried about their savings with a stark insight to digest over the last two weeks of summer: 'We as a society do not understand or know how to deal with speculative bubbles.'
danpink.com - Dan Pink
[I]t's an interesting book. . . . [S]hiller convinced me . . . that bailing out banks and borrowers who've been clobbered might be the right thing to do.
Fortune - Katie Benner
In his now-famous 2005 book, Irrational Exuberance, Second Edition, Yale professor and economist Robert Shiller predicted a boom and bust in real estate would have terrifying global ramifications. He was mocked by realtors, but global bank failures and the bailout of Fannie Mae and Freddie Mac have proved him dead on. Now Shiller strikes again with The Subprime Solution, his suggestion for sweeping economic reform to get us out of this mess.
The Investor - Paul O'Doherty
While initially providing a short and concise understanding of the subprime fiasco, Shiller goes on to investigate the various financial collapses over the years and the history of recent housing arrangements, searching for clues that might inspire a universal remedy to our current predicament. . . . Along the way, the narrative, which skips along without being fussy or intrusive, also emphasises the characteristics, psychology and lifespan of the bubble—be it financial, IT or housing—and how the way we've changed the way we think 'is the deepest cause' of the current variant of the malignancy.
The Sacramento Bee - Jim Wasserman
[Shiller] offers a primer on the history of home prices, roots of subprime lending and a road map of what to do now. The book is at its best when explaining how so few in authority imagined what has come to pass. Shiller says they were filled with same housing boom faith held by the public.
Kiplinger's - Robert Frick
In his latest book, The Subprime Solution, he briefly but deftly dissects how easy credit, lack of government oversight and human behavior allowed the subprime bubble to inflate. Shiller's understanding of human behavior is the book's genius, both in the diagnosis and the proposed cures.
Milwaukee Journal-Sentinel - Geeta Sharma-Jensen
For a closer examination of the crisis, there's The Subprime Solution by Yale University economist Robert J. Shiller, the bestselling author of Irrational Exuberance. In his new book, Shiller focuses more tightly on the stock market bubble of the 1990s and the housing bubble of the last seven years, which led lenders to loosen requirements for loans and resell these questionable loans in the subprime market. He shows how the bubble, when overheated housing prices cooled and asset values fell, burst and led directly to the subprime mortgage crisis that torpedoed the credit markets and with them stock markets worldwide.
Choice - E.L. Whalen
In this slim volume, Shiller not only describes the problem but also places equal emphasis on various proposals to correct it. Rather than viewing the subprime meltdown and credit contraction as a handwringing crisis, he sees it as an opportunity to initiate institutional reforms that will ensure against repeat failures and extend opportunities for home ownership. . . . An important, timely book.
Montreal Gazette - William Watson
Reading Shiller also makes me optimistic. Ever the contrarian, he's convinced that, used properly, the new financial technologies that have such a bad name right now will make us all much better off in the long run. In particular, he's working on ways ordinary folk can get out from under the now standard but truly bizarre investment custom in which most of us sink most of our net worth into a single piece of real estate. What kind of sensible diversification is that? What Shiller proposes is the market-led 'democratization of finance.' Coming from anyone else you'd think it was a scam. But read his book and you'll end up feeling strangely optimistic, despite the enveloping gloom.
Fredricksburg Free Lance-Star - Bill Freehling
The Subprime Solution is an easy read at less than 200 pages. People seeking to understand the cause of the housing bubble, and those wanting to consider short- and long-term solutions would be well-served reading it.
Newsweek - Zachary Karabell
In The Subprime Solution, which he wrote just as the system was beginning to implode, he says that what is needed now is the next stage of financial innovation, not constriction. . . .He also sees government intervention as vital to channel animal spirits and innovation. . . .In essence, Shiller is laying the intellectual groundwork for the next financial revolution.
Foreign Affairs - Richard N. Cooper
The book is not so much an analysis of the subprime crisis as an essay that ruminates on the genesis and evolution of financial bubbles in general and housing bubbles in particular. Shiller believes correctly that economists, in their emphasis on rational decision-making, have confused desired outcomes with actual outcomes—and have paid far too little attention to the reality of swings in social sentiments that can move market prices far from sustainable levels.
The Business Economist - Shamik Dhar
This is an important book from a distinguished academic. . . . The book offers a coherent alternative to policy makers. They should consider its recommendations very seriously.
Journal of Property Investment & Finance - Ye Xu
[T]his is an exciting book that is to be read under the current market condition. It provides us some hope of correcting the existing problems, so as to have a brighter future.
Eastern Economic Journal - Oscar T. Brookins
Policymakers, and students of financial history, money and macroeconomics, will find much of value in Shiller's assessment of the subprime debacle."
From the Publisher

" [I]t's an interesting book. . . . [S]hiller convinced me . . . that bailing out banks and borrowers who've been clobbered might be the right thing to do."--Dan Pink, danpink.com

"In his now-famous 2005 book, Irrational Exuberance, Second Edition, Yale professor and economist Robert Shiller predicted a boom and bust in real estate would have terrifying global ramifications. He was mocked by realtors, but global bank failures and the bailout of Fannie Mae and Freddie Mac have proved him dead on. Now Shiller strikes again with The Subprime Solution, his suggestion for sweeping economic reform to get us out of this mess."--Katie Benner, Fortune

"While initially providing a short and concise understanding of the subprime fiasco, Shiller goes on to investigate the various financial collapses over the years and the history of recent housing arrangements, searching for clues that might inspire a universal remedy to our current predicament. . . . Along the way, the narrative, which skips along without being fussy or intrusive, also emphasises the characteristics, psychology and lifespan of the bubble--be it financial, IT or housing--and how the way we've changed the way we think 'is the deepest cause' of the current variant of the malignancy."--Paul O'Doherty, The Investor

"[Shiller] offers a primer on the history of home prices, roots of subprime lending and a road map of what to do now. The book is at its best when explaining how so few in authority imagined what has come to pass. Shiller says they were filled with same housing boom faith held by the public."--Jim Wasserman, The Sacramento Bee

"In his latest book, The Subprime Solution, he briefly but deftly dissects how easy credit, lack of government oversight and human behavior allowed the subprime bubble to inflate. Shiller's understanding of human behavior is the book's genius, both in the diagnosis and the proposed cures."--Robert Frick, Kiplinger's

"For a closer examination of the crisis, there's The Subprime Solution by Yale University economist Robert J. Shiller, the bestselling author of Irrational Exuberance. In his new book, Shiller focuses more tightly on the stock market bubble of the 1990s and the housing bubble of the last seven years, which led lenders to loosen requirements for loans and resell these questionable loans in the subprime market. He shows how the bubble, when overheated housing prices cooled and asset values fell, burst and led directly to the subprime mortgage crisis that torpedoed the credit markets and with them stock markets worldwide."--Geeta Sharma-Jensen, Milwaukee Journal-Sentinel

"In this slim volume, Shiller not only describes the problem but also places equal emphasis on various proposals to correct it. Rather than viewing the subprime meltdown and credit contraction as a handwringing crisis, he sees it as an opportunity to initiate institutional reforms that will ensure against repeat failures and extend opportunities for home ownership. . . . An important, timely book."--E.L. Whalen, Choice

"Reading Shiller also makes me optimistic. Ever the contrarian, he's convinced that, used properly, the new financial technologies that have such a bad name right now will make us all much better off in the long run. In particular, he's working on ways ordinary folk can get out from under the now standard but truly bizarre investment custom in which most of us sink most of our net worth into a single piece of real estate. What kind of sensible diversification is that? What Shiller proposes is the market-led 'democratization of finance.' Coming from anyone else you'd think it was a scam. But read his book and you'll end up feeling strangely optimistic, despite the enveloping gloom."--William Watson, Montreal Gazette

"The Subprime Solution is an easy read at less than 200 pages. People seeking to understand the cause of the housing bubble, and those wanting to consider short- and long-term solutions would be well-served reading it."--Bill Freehling, Fredricksburg Free Lance-Star

"In The Subprime Solution, which he wrote just as the system was beginning to implode, he says that what is needed now is the next stage of financial innovation, not constriction. . . .He also sees government intervention as vital to channel animal spirits and innovation. . . .In essence, Shiller is laying the intellectual groundwork for the next financial revolution."--Zachary Karabell, Newsweek
"The book is not so much an analysis of the subprime crisis as an essay that ruminates on the genesis and evolution of financial bubbles in general and housing bubbles in particular. Shiller believes correctly that economists, in their emphasis on rational decision-making, have confused desired outcomes with actual outcomes--and have paid far too little attention to the reality of swings in social sentiments that can move market prices far from sustainable levels."--Richard N. Cooper, Foreign Affairs

"This is an important book from a distinguished academic. . . . The book offers a coherent alternative to policy makers. They should consider its recommendations very seriously."--Shamik Dhar, The Business Economist

"[T]his is an exciting book that is to be read under the current market condition. It provides us some hope of correcting the existing problems, so as to have a brighter future."--Ye Xu, Journal of Property Investment & Finance

"Policymakers, and students of financial history, money and macroeconomics, will find much of value in Shiller's assessment of the subprime debacle."--Oscar T. Brookins, Eastern Economic Journal

John Lanchester
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.
— The New Yorker
James R. Hagerty
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.
— Wall Street Journal
Max Fraser
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.
— The Nation
James Pressley
[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.
— Bloomberg News
Daniel McGinn
In The Subprime Solution, [Shiller] briskly sketches out his views on both short-term and long-term strategies for dealing with a housing meltdown that's left millions of Americans a lot less wealthy--and an unfortunate number at risk for losing their homes. . . . The book's most compelling discussion centers on the long-term opportunities that lie in this crisis. Shiller describes how key parts of America's financial system--the Federal Reserve, the Securities and Exchange Commission, and the FDIC, to name only three--were created in the reforms after earlier bank crises or the Great Depression. . . . Shiller suggests that political leaders should look at the current crisis as an opportunity to rethink the homebuying process and add new protections to keep homeowners from getting in over their heads during a future bubble.
— Newsweek.com
Arvind Subramanian
What sets Shiller apart--brilliantly apart--from other analysts of the housing bubble are the sharpness of his diagnoses and the creativity of his solutions. These are the core of his excellent new book, The Subprime Solution. . . . [A] brilliant and radical--but not implausible--perspective on putting the Humpty Dumpty that is American finance together again.
— Forbes.com
Clive Crook
Yale University's Robert Shiller is one of the world's outstanding economic thinkers and intellectual innovators, with a record of foresight that is the envy of his profession. . . . His short, snappy and surprisingly far-reaching book on the subprime crisis is as interesting and indispensible as you would expect. . . . The Subprime Solution is an ambitious little volume. . . . It covers a remarkable amount of ground in less than 200 pages. . . . . [T]he book's broad framing of the issues is novel and valuable, and its arguments are always stimulating. . . . Shiller . . . is an ardent financial-technology optimist, and his book is a torrent of fascinating ideas. Anybody interested in the subject must profit from reading it.
— Financial Times
Andrew Allentuck
Robert J. Shiller explains how trillions of dollars of mortgage debt, based on dubious loans to doubtful borrowers, were forfeited and how it can be fixed. An influential economist, he offers insights into the growth of the credit bubble and solutions for curing the ensuing chaos. . . . Shiller's reputation in economics, his majestic prose style, his statistical proofs and his vast coterie of admirers suggest that at least some of his recommendations will become part of U.S. mortgage regulation. . . . For those who want to figure out how to fix the global credit crisis that has developed as a result of Americans' inability or unwillingness to read their mortgage contracts, The Subprime Solution is vital reading. It is advocacy built on faith that government does good, that intervention never produces unintended results and that there is no other way to fix the mortgage mess.
— The Globe & Mail
Christopher Farrell
In his new book, The Subprime Solution, the Yale University professor sounds an alarm that the credit crunch, now early in its second year, poses a dire risk. His text is a stimulating, rapid response to current events--and a forceful demand for dramatic action from Washington, where, he says, the White House and Congress have been 'totally inadequate' to the task. . . . [A] storehouse of valuable, provocative ideas awaits the reader of The Subprime Solution.
— BusinessWeek
Justin Fox
In The Subprime Solution, he argues that what united the missteps by the Federal Reserve, mortgage brokers, Wall Street bankers, and home buyers that together brought on the current financial mess was a shared belief that house prices never go down. What's the antidote to that kind of mass delusion? Shiller seems to have no interest in substituting his judgment, or the government's, for the market's. Instead, he sees information and innovation as the counter to group think.
— Time
Tim Worstall
Robert Shiller's got an argument that will make some peoples' heads explode in his new book The Subprime Solution--we need more speculation in the housing market. . . . I said above that this solution will make some peoples' heads explode, that the solution to an excess of speculation is to create a market in yet more speculation. Yet in this case ti is indeed true, this is a valid solution.
— The Register
Robert Elder
American optimism: Is there any investment bubble it can't fuel? Consider the excesses of the housing market, the effects of which are roiling the global economy. As Yale University economist Robert Shiller demonstrates in his short, whip-smart new book The Subprime Solution, there was a contagion at work that helped pushed home prices to unsustainable levels. . . . Shiller's views are grounded in exhaustive research and penetrating analysis. The Subprime Solution should be read by anyone with assets at risk in the global financial crisis and a desire to fix things ahead of the next crisis. Which is to say, all of us.
— Austin American-Statesman
Michael Savage
[The Subprime Solution] is short, punchy and political. Shiller is a top-flight academic economist who has often warned of the tendency of markets towards irrational exuberance, and of the harmful consequences that follow. He is rightly scathing towards the 'boosters' who kept assuring us that house prices only rise, and he gains authority for having spoken out during the boom, when it was an unpopular position to hold. . . . Shiller's debunking of house price myths is masterful. Especially important is his rubbishing of the concept of scarcity . . . Shiller's explanations are sophisticated and intelligent, and they are also admirably clear.
— Fund Strategy
Andrew Rosenblum
The Subprime Solution, his postmortem on irrational exuberance in the real estate market, is superb, even for general-interest readers otherwise confused by the whole mess. Though his introduction reads a bit like an arid position paper, his insistence on the fundamentally psychological, rather than economic, basis of the boom is supple and fascinating.
— New York Observer
John Fout
If you're unfamiliar with Robert Shiller then understand that he is perhaps the most eminent and considered examiner of modern investment bubbles. . . . Shiller's new book, The Subprime Solution, is a concise attempt to elaborate in just seven short chapters the genesis of the housing bubble, explode its myths, explore its scale and the dangers of its deepening impact, assert the need to maintain confidence in our economic and financial institutions by aggressive action, and then explore longer-term, more fundamental reforms and innovations that will create a population much more attuned to economic risk.... There are many more recommendations, but if this book has the ambition of Keynes' earlier work, and the scale of the problem is as suggested, I'd argue that the book is as accessible as you are going to get from such a modern behavioural economics guru. It's a book that everyone who lives in a house should own; just don't buy ten and try to rent them out to friends.
— The Knackered Hack
TheStreet.com
In his latest work, The Subprime Solution, Shiller explains that greater financial 'democracy' and a 'contagion of ideas' led many to conclude a 'new era' had been reached in real estate. The public expected prices to rise continually. Worse, Shiller wrote: 'The very people responsible for oversight were caught up in the same high expectations for future prices.'. . . Shiller's The Subprime Solution is well worth the read for individuals and private enterprise looking to understand current real estate bubble. It should be required reading for public policy makers who need to take immediate action to solve the subprime crisis.
— John Fout
Kevin G. Hall
Like the financial bubble in technology stocks that exploded in 2000, real estate investors acted on unrealistic assumptions that prices could only go up. In the aftermath, Shiller's recommendation to policy makers is 'Mend It, Don't End It.' He advises regulatory modifications and greater financial disclosure from all players in the complex mortgage-banking process.
— McClatchy Newspapers
Robert Lenzner
In [The Subprime Solution], he provides the ignoramuses on Wall Street, asleep-at-the-switch regulators and dumbfounded investors worried about their savings with a stark insight to digest over the last two weeks of summer: 'We as a society do not understand or know how to deal with speculative bubbles.'
— Forbes.com
Dan Pink
[I]t's an interesting book. . . . [S]hiller convinced me . . . that bailing out banks and borrowers who've been clobbered might be the right thing to do.
— danpink.com
Katie Benner
In his now-famous 2005 book, Irrational Exuberance, Second Edition, Yale professor and economist Robert Shiller predicted a boom and bust in real estate would have terrifying global ramifications. He was mocked by realtors, but global bank failures and the bailout of Fannie Mae and Freddie Mac have proved him dead on. Now Shiller strikes again with The Subprime Solution, his suggestion for sweeping economic reform to get us out of this mess.
— Fortune
Paul O'Doherty
While initially providing a short and concise understanding of the subprime fiasco, Shiller goes on to investigate the various financial collapses over the years and the history of recent housing arrangements, searching for clues that might inspire a universal remedy to our current predicament. . . . Along the way, the narrative, which skips along without being fussy or intrusive, also emphasises the characteristics, psychology and lifespan of the bubble--be it financial, IT or housing--and how the way we've changed the way we think 'is the deepest cause' of the current variant of the malignancy.
— The Investor
Jim Wasserman
[Shiller] offers a primer on the history of home prices, roots of subprime lending and a road map of what to do now. The book is at its best when explaining how so few in authority imagined what has come to pass. Shiller says they were filled with same housing boom faith held by the public.
— The Sacramento Bee
Robert Frick
In his latest book, The Subprime Solution, he briefly but deftly dissects how easy credit, lack of government oversight and human behavior allowed the subprime bubble to inflate. Shiller's understanding of human behavior is the book's genius, both in the diagnosis and the proposed cures.
— Kiplinger's
Geeta Sharma-Jensen
For a closer examination of the crisis, there's The Subprime Solution by Yale University economist Robert J. Shiller, the bestselling author of Irrational Exuberance. In his new book, Shiller focuses more tightly on the stock market bubble of the 1990s and the housing bubble of the last seven years, which led lenders to loosen requirements for loans and resell these questionable loans in the subprime market. He shows how the bubble, when overheated housing prices cooled and asset values fell, burst and led directly to the subprime mortgage crisis that torpedoed the credit markets and with them stock markets worldwide.
— Milwaukee Journal-Sentinel
E.L. Whalen
In this slim volume, Shiller not only describes the problem but also places equal emphasis on various proposals to correct it. Rather than viewing the subprime meltdown and credit contraction as a handwringing crisis, he sees it as an opportunity to initiate institutional reforms that will ensure against repeat failures and extend opportunities for home ownership. . . . An important, timely book.
— Choice
William Watson
Reading Shiller also makes me optimistic. Ever the contrarian, he's convinced that, used properly, the new financial technologies that have such a bad name right now will make us all much better off in the long run. In particular, he's working on ways ordinary folk can get out from under the now standard but truly bizarre investment custom in which most of us sink most of our net worth into a single piece of real estate. What kind of sensible diversification is that? What Shiller proposes is the market-led 'democratization of finance.' Coming from anyone else you'd think it was a scam. But read his book and you'll end up feeling strangely optimistic, despite the enveloping gloom.
— Montreal Gazette
Bill Freehling
The Subprime Solution is an easy read at less than 200 pages. People seeking to understand the cause of the housing bubble, and those wanting to consider short- and long-term solutions would be well-served reading it.
— Fredricksburg Free Lance-Star
Zachary Karabell
In The Subprime Solution, which he wrote just as the system was beginning to implode, he says that what is needed now is the next stage of financial innovation, not constriction. . . .He also sees government intervention as vital to channel animal spirits and innovation. . . .In essence, Shiller is laying the intellectual groundwork for the next financial revolution.
— Newsweek
Richard N. Cooper
The book is not so much an analysis of the subprime crisis as an essay that ruminates on the genesis and evolution of financial bubbles in general and housing bubbles in particular. Shiller believes correctly that economists, in their emphasis on rational decision-making, have confused desired outcomes with actual outcomes--and have paid far too little attention to the reality of swings in social sentiments that can move market prices far from sustainable levels.
— Foreign Affairs
Shamik Dhar
This is an important book from a distinguished academic. . . . The book offers a coherent alternative to policy makers. They should consider its recommendations very seriously.
— The Business Economist
TheStreet.com
In his latest work, The Subprime Solution, Shiller explains that greater financial 'democracy' and a 'contagion of ideas' led many to conclude a 'new era' had been reached in real estate. The public expected prices to rise continually. Worse, Shiller wrote: 'The very people responsible for oversight were caught up in the same high expectations for future prices.'. . . Shiller's The Subprime Solution is well worth the read for individuals and private enterprise looking to understand current real estate bubble. It should be required reading for public policy makers who need to take immediate action to solve the subprime crisis.
Fortune
In his now-famous 2005 book, Irrational Exuberance, Second Edition, Yale professor and economist Robert Shiller predicted a boom and bust in real estate would have terrifying global ramifications. He was mocked by realtors, but global bank failures and the bailout of Fannie Mae and Freddie Mac have proved him dead on. Now Shiller strikes again with The Subprime Solution, his suggestion for sweeping economic reform to get us out of this mess.
— Katie Benner
Time
In The Subprime Solution, he argues that what united the missteps by the Federal Reserve, mortgage brokers, Wall Street bankers, and home buyers that together brought on the current financial mess was a shared belief that house prices never go down. What's the antidote to that kind of mass delusion? Shiller seems to have no interest in substituting his judgment, or the government's, for the market's. Instead, he sees information and innovation as the counter to group think.
— Justin Fox
Wall Street Journal
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
The Nation
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 New Yorker
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
Financial Times
Yale University's Robert Shiller is one of the world's outstanding economic thinkers and intellectual innovators, with a record of foresight that is the envy of his profession. . . . His short, snappy and surprisingly far-reaching book on the subprime crisis is as interesting and indispensible as you would expect. . . . The Subprime Solution is an ambitious little volume. . . . It covers a remarkable amount of ground in less than 200 pages. . . . . [T]he book's broad framing of the issues is novel and valuable, and its arguments are always stimulating. . . . Shiller . . . is an ardent financial-technology optimist, and his book is a torrent of fascinating ideas. Anybody interested in the subject must profit from reading it.
— Clive Crook
New York Observer
The Subprime Solution, his postmortem on irrational exuberance in the real estate market, is superb, even for general-interest readers otherwise confused by the whole mess. Though his introduction reads a bit like an arid position paper, his insistence on the fundamentally psychological, rather than economic, basis of the boom is supple and fascinating.
— Andrew Rosenblum
Kiplinger's
In his latest book, The Subprime Solution, he briefly but deftly dissects how easy credit, lack of government oversight and human behavior allowed the subprime bubble to inflate. Shiller's understanding of human behavior is the book's genius, both in the diagnosis and the proposed cures.
— Robert Frick
BusinessWeek
In his new book, The Subprime Solution, the Yale University professor sounds an alarm that the credit crunch, now early in its second year, poses a dire risk. His text is a stimulating, rapid response to current events—and a forceful demand for dramatic action from Washington, where, he says, the White House and Congress have been 'totally inadequate' to the task. . . . [A] storehouse of valuable, provocative ideas awaits the reader of The Subprime Solution.
— Christopher Farrell
The Globe & Mail
Robert J. Shiller explains how trillions of dollars of mortgage debt, based on dubious loans to doubtful borrowers, were forfeited and how it can be fixed. An influential economist, he offers insights into the growth of the credit bubble and solutions for curing the ensuing chaos. . . . Shiller's reputation in economics, his majestic prose style, his statistical proofs and his vast coterie of admirers suggest that at least some of his recommendations will become part of U.S. mortgage regulation. . . . For those who want to figure out how to fix the global credit crisis that has developed as a result of Americans' inability or unwillingness to read their mortgage contracts, The Subprime Solution is vital reading. It is advocacy built on faith that government does good, that intervention never produces unintended results and that there is no other way to fix the mortgage mess.
— Andrew Allentuck
Newsweek.com
In The Subprime Solution, [Shiller] briskly sketches out his views on both short-term and long-term strategies for dealing with a housing meltdown that's left millions of Americans a lot less wealthy—and an unfortunate number at risk for losing their homes. . . . The book's most compelling discussion centers on the long-term opportunities that lie in this crisis. Shiller describes how key parts of America's financial system—the Federal Reserve, the Securities and Exchange Commission, and the FDIC, to name only three—were created in the reforms after earlier bank crises or the Great Depression. . . . Shiller suggests that political leaders should look at the current crisis as an opportunity to rethink the homebuying process and add new protections to keep homeowners from getting in over their heads during a future bubble.
— Daniel McGinn
TheStreet.com
In his latest work, The Subprime Solution, Shiller explains that greater financial 'democracy' and a 'contagion of ideas' led many to conclude a 'new era' had been reached in real estate. The public expected prices to rise continually. Worse, Shiller wrote: 'The very people responsible for oversight were caught up in the same high expectations for future prices.'. . . Shiller's The Subprime Solution is well worth the read for individuals and private enterprise looking to understand current real estate bubble. It should be required reading for public policy makers who need to take immediate action to solve the subprime crisis.
— John Fout
Milwaukee Journal-Sentinel
For a closer examination of the crisis, there's The Subprime Solution by Yale University economist Robert J. Shiller, the bestselling author of Irrational Exuberance. In his new book, Shiller focuses more tightly on the stock market bubble of the 1990s and the housing bubble of the last seven years, which led lenders to loosen requirements for loans and resell these questionable loans in the subprime market. He shows how the bubble, when overheated housing prices cooled and asset values fell, burst and led directly to the subprime mortgage crisis that torpedoed the credit markets and with them stock markets worldwide.
— Geeta Sharma-Jensen
Austin American-Statesman
American optimism: Is there any investment bubble it can't fuel? Consider the excesses of the housing market, the effects of which are roiling the global economy. As Yale University economist Robert Shiller demonstrates in his short, whip-smart new book The Subprime Solution, there was a contagion at work that helped pushed home prices to unsustainable levels. . . . Shiller's views are grounded in exhaustive research and penetrating analysis. The Subprime Solution should be read by anyone with assets at risk in the global financial crisis and a desire to fix things ahead of the next crisis. Which is to say, all of us.
— Robert Elder
Bloomberg News
[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
The Register
Robert Shiller's got an argument that will make some peoples' heads explode in his new book The Subprime Solution—we need more speculation in the housing market. . . . I said above that this solution will make some peoples' heads explode, that the solution to an excess of speculation is to create a market in yet more speculation. Yet in this case ti is indeed true, this is a valid solution.
— Tim Worstall
The Knackered Hack
If you're unfamiliar with Robert Shiller then understand that he is perhaps the most eminent and considered examiner of modern investment bubbles. . . . Shiller's new book, The Subprime Solution, is a concise attempt to elaborate in just seven short chapters the genesis of the housing bubble, explode its myths, explore its scale and the dangers of its deepening impact, assert the need to maintain confidence in our economic and financial institutions by aggressive action, and then explore longer-term, more fundamental reforms and innovations that will create a population much more attuned to economic risk.... There are many more recommendations, but if this book has the ambition of Keynes' earlier work, and the scale of the problem is as suggested, I'd argue that the book is as accessible as you are going to get from such a modern behavioural economics guru. It's a book that everyone who lives in a house should own; just don't buy ten and try to rent them out to friends.
Fund Strategy
[The Subprime Solution] is short, punchy and political. Shiller is a top-flight academic economist who has often warned of the tendency of markets towards irrational exuberance, and of the harmful consequences that follow. He is rightly scathing towards the 'boosters' who kept assuring us that house prices only rise, and he gains authority for having spoken out during the boom, when it was an unpopular position to hold. . . . Shiller's debunking of house price myths is masterful. Especially important is his rubbishing of the concept of scarcity . . . Shiller's explanations are sophisticated and intelligent, and they are also admirably clear.
— Michael Savage
Fredricksburg Free Lance-Star
The Subprime Solution is an easy read at less than 200 pages. People seeking to understand the cause of the housing bubble, and those wanting to consider short- and long-term solutions would be well-served reading it.
— Bill Freehling
Wall Street Journal
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
TheStreet.com
In his latest work, The Subprime Solution, Shiller explains that greater financial 'democracy' and a 'contagion of ideas' led many to conclude a 'new era' had been reached in real estate. The public expected prices to rise continually. Worse, Shiller wrote: 'The very people responsible for oversight were caught up in the same high expectations for future prices.'. . . Shiller's The Subprime Solution is well worth the read for individuals and private enterprise looking to understand current real estate bubble. It should be required reading for public policy makers who need to take immediate action to solve the subprime crisis.
— John Fout
Forbes.com
In [The Subprime Solution], he provides the ignoramuses on Wall Street, asleep-at-the-switch regulators and dumbfounded investors worried about their savings with a stark insight to digest over the last two weeks of summer: 'We as a society do not understand or know how to deal with speculative bubbles.'
— Robert Lenzner
Austin American-Statesman
American optimism: Is there any investment bubble it can't fuel? Consider the excesses of the housing market, the effects of which are roiling the global economy. As Yale University economist Robert Shiller demonstrates in his short, whip-smart new book The Subprime Solution, there was a contagion at work that helped pushed home prices to unsustainable levels. . . . Shiller's views are grounded in exhaustive research and penetrating analysis. The Subprime Solution should be read by anyone with assets at risk in the global financial crisis and a desire to fix things ahead of the next crisis. Which is to say, all of us.
— Robert Elder
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Product Details

  • ISBN-13: 9780691139296
  • Publisher: Princeton University Press
  • Publication date: 8/4/2008
  • Pages: 208
  • Sales rank: 799,591
  • Product dimensions: 5.80 (w) x 8.60 (h) x 0.90 (d)

Meet the Author

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.

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Table of Contents


Acknowledgments ix
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
Index 179
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  • Posted February 23, 2009

    more from this reviewer

    I Also Recommend:

    Provocative analysis of the credit crunch

    Robert Shiller, Professor of Economics at Yale University, has written an intriguing book about the financial crisis.

    He writes of the US housing slump in the 1980s, "All this could have been prevented if people had simply adopted inflation-linked mortgages, but the public seemed unable to grasp the concept." He seems to be blaming the public, for having imperfect information. But if markets only work when everyone has perfect information, then markets don't work.

    Excessive lending and speculation in housing created the house price boom of the early 2000s. Shiller blames 'the contagion of market psychology', a contagion without borders because of capitalism's global nature. But the cause was not 'market psychology', but the globalised financial system which provided the opportunities and incentives for speculators. The system created the psychology, not vice versa.

    Shiller proposes to revamp the financial system: improve the provision of financial information, extend the scope of financial markets to cover a wider array of economic risks, and create retail financial instruments to provide greater security to consumers. He defends the top executives in the financial sector and calls for extending and developing financial markets. But even more opportunities and incentives to speculate would lead to an even bigger crisis next time.

    Yet he does make some sensible proposals, like improving insurance against unemployment and illness. He says that to restore confidence, capitalism must bail out the low-income victims of sub prime mortgage deals and support homeowners, to prevent mass evictions. He opposes bailouts to maintain high values in the housing market, stock market, land market or any other speculative market.

    He points out that unfair land use restrictions benefit landowners by keeping land prices high, preventing new construction. We need cheaper land, so that we can build more homes.

    But of course if capitalism could do all these good things, it wouldn't be capitalism.

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