Shiller: The subprime solution

Shiller, RJ. 2008. The subprime solution. Princeton University Press.

The subprime crisis is a real-estate bubble that spread to finance. It has produced conditions that are potentially catastrophic, and needs to be addressed in a serious and direct way.

This is not, however, a crisis that should signal the retreat from finance capitalism. In fact, we should be doing more to create infrastructures that promote markets that are designed to mitigate risk. We should also be increasing transparency and moving towards a situation where the system is able to avoid the promotion of bubbles through increased information. As in Shiller's other work, there is a heavy focus on the psychological aspects of market behavior.

"The key to the subprime solution, to preventing future crises like the current one, as well as mitigating its aftereffects, is democratizing finance--extending the application of sound financial principles to a larger and larger segment of society, and using all the modern technology at our disposal to achieve that goal" (115).

In the index, there is no mention of either derivatives or collateralized debt obligations.