Monday, August 11, 2008

Shiller on the sub-prime crisis

Robert Shiller of Yale has come out with a book on the sub-prime crisis, The Sub-Prime Solution (Princeton). I had a chance to review it in my ET column, Can we prevent a sub-prime crisis?

Shiller's focus is on sub-prime loans. I thought the focus was somewhat misplaced. The problem may have originated in the sub-prime market but it got magnified into a financial crisis because of financial institutions' leverage exposure to sub-prime loans. It is financial regulation that needs to be revisited after the sub-prime crisis, not so much the sub-prime market and the protection of home loan borrowers.

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