The Subprime Crisis

LSE public lecture

Bubbles in the stock market and the housing market are the cause of a financial crisis that is wreaking havoc around the world. The bubbles in turn are caused, at their core, by popular misunderstandings. This contradicts the 'rational expectations' view of the economy that has guided much economic theorizing. In dealing with this crisis in the short run, some kind of bailout of injured parties is necessary to prevent damage to the social fabric. In the long run, we can help mitigate such crises by improving the financial information infrastructure, by expanding market coverage of important risks, and introducing new retail financial products.

Robert J. Shiller is the Arthur M. Okun Professor of Economics, Department of Economics and Cowles Foundation for Research in Economics, Yale University, and Professor of Finance and Fellow at the International Center for Finance, Yale School of Management. He received his B.A. from the University of Michigan in 1967 and his Ph.D. in economics from the Massachusetts Institute of Technology in 1972. He has written on financial markets, financial innovation, behavioral economics, macroeconomics, real estate, statistical methods, and on public attitudes, opinions, and moral judgments regarding markets.

His 1989 book Market Volatility (MIT Press) is a mathematical and behavioral analysis of price fluctuations in speculative markets. His 1993 book Macro Markets: Creating Institutions for Managing Society's Largest Economic Risks (Oxford University Press) (available via subscribing libraries on Oxford Online) proposes a variety of new risk-management contracts, such as futures contracts in national incomes or securities based on real estate that would permit the management of risks to standards of living. His book Irrational Exuberance (Princeton 2000, Broadway Books 2001, 2nd edition Princeton 2005, and in 15 foreign language editions) is an analysis and explication of speculative bubbles, with special reference to the stock market and real estate. His book The New Financial Order: Risk in the 21st Century (Princeton University Press, 2003, 2004, and in 8 foreign language editions) is an analysis of an expanding role of finance, insurance, and public finance in our future.

This event celebrates the publication of Professor Shiller's most recent book The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do About It, (Princeton University Press, September 2008), which offers an analysis of the housing and economic crisis and a plan of action against it.

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