Schiller: “The Financial Fire Next Time”

No comments

There’s a good post by Robert Schiller on ProjectSyndicate on the failure, since the financial crisis, to evolve markets to prevent another crisis. Schiller, who is a long-time advocate of expanding creative risk management options in areas such as income protection and housing, (a position I wholeheartedly support) is critical of regulators’ inability to develop some of the new thinking that has emerged since the crisis.

images

Speaking to Andrew Caplin of NYU, for example, Schiller notes:

At the session, I asked Caplin about his effort, starting with his co-authored 1997 book Housing Partnerships, which proposed allowing homebuyers to buy only a fraction of a house, thereby reducing their risk exposure without putting taxpayers at risk. If implemented, his innovative idea would reduce homeowners’ leverage. But, while it was a highly leveraged mortgage market that fueled the financial crisis 11 years later, the idea, he said, has not made headway anywhere in the world.

Why not, I asked? Why can’t creative people with their lawyers simply create such partnerships for themselves? The answer, he replied, is complicated; but, at least in the US, one serious problem looms large: the US Internal Revenue Service’s refusal to issue an advance ruling on how such risk-managing arrangements would be taxed. Given the resulting uncertainty, no one is in a mood to be creative.

Schiller is absolutely correct that more could be done to develop new and improved micro-economic risk management solutions. Both his critique and call to action are on the spot.

Read more at http://www.project-syndicate.org/commentary/robert-j–shiller-asks-why-innovative-ideas-to-prevent-another-financial-crisis-have-gained-no-political-or-media-traction#OMqJ27sgEbQWKQdT.99

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s