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Policies to Deal with the Implosion in the Mortgage Market

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Author Info

  • Shiller Robert J.

    ()
    (Yale University)

Abstract

This paper relates the 2006-2008 meltdown in mortgage markets to falling asset prices, excessive psychological reaction to the burst bubble, and new mortgage vehicles incapable of accommodating sudden changes in asset values. A combination of market-based and regulatory innovations are proposed. The paper suggests placing greater reliance on innovative futures markets in real estate, inducing the flow of capital to vehicles having self-regulatory features and cultivating resiliency in the market. The bankruptcy law also might come to include “circuit breaker" delays in finalizing settlements during turbulent market settings. Some of the fundamental premises underlying mortgage finance should also be reconsidered. Stakes in individual residences could be combined with stakes in regional property portfolios. Finally, the paper promotes a system of “continuous workout mortgages" regularly readjusting loan balances to reflect economic conditions. These contracts could provide needed flexibility; they also offer systematic advantages over the various sector-based bailout strategies inherent in current loan-modification proposals.

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File URL: http://www.degruyter.com/view/j/bejeap.2009.9.3/bejeap.2009.9.3.2222/bejeap.2009.9.3.2222.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 3 (March)
Pages: 1-25

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:3:n:4

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Web page: http://www.degruyter.com

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Cited by:
  1. Rainer Bartel, 2009. "Weltwirtschaftskrise und Politikwechsel," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 35(2), pages 145-186.
  2. Koutsobinas, Theodore, 2011. "Animal spirits, liquidity-preference and Keynesian behavioural macroeconomics: An intertemporal framework," MPRA Paper 43027, University Library of Munich, Germany.

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