Saturday, May 2, 2009

Policies to Deal with the Implosion in the Mortgage Market

By Robert J. Shiller from The B.E. Journal of Economic Analysis & Policy:

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.
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