Word: shiller
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...economy can produce in a year. Much of the increase in debt was used to invest in real estate. The result was a bubble; at its peak, average U.S. house prices were rising at 20% a year. Then - as bubbles always do - it burst. The S&P Case-Shiller index of house prices in 20 cities has been falling since February 2007. And the decline is accelerating. In June prices were down 16% compared with a year earlier. In some cities - like Phoenix and Miami - they have fallen by as much as a third from their peaks. The U.S. real...
...loans, because what analysts call "house-price appreciation" would increase the value of the collateral if borrowers couldn't or wouldn't pay. The idea that we'd have house-price depreciation - average house prices in the top 20 markets are down 15%, according to the S&P Case-Shiller index - never entered into the equation...
Irrational Exuberance may have come out just as the market peaked in 2000, for example, but Shiller had actually begun voicing his worries about high stock prices years before. Fed Chairman Greenspan got an earful from the economist a few days before making his "irrational exuberance" speech in 1996 suggesting the market was overvalued. But prices kept rising, and Greenspan concluded that he shouldn't try to outguess the market. Other economists have since shown that acting on Shiller's bearish advice then would have cost an investor big gains over the subsequent decade. One man was no match...
...trusting in the wisdom of stock markets in 2000 or real estate markets in 2005 was a mistake too. In Shiller's view, the biggest dangers in financial markets come from unanimity. In 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. An active market in house-price futures and options--Shiller has recently helped launch such securities on the Chicago Mercantile Exchange--would let skeptical speculators prick housing bubbles, he argues. If banks wrote continuous-workout mortgages--in which the terms changed depending on house prices, unemployment and the like--homeowners might be less addicted to rising prices. If government subsidized...