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Executive Times |
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2008 Book Reviews |
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The
Subprime Solution: How Today's Global Financial Crisis Happened, and What to
Do about It by Robert J. Shiller |
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Rating: |
*** |
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(Recommended) |
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Click
on title or picture to buy from amazon.com |
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Manifesto Robert
Shiller’s new book, The
Subprime Solution: How Today's Global Financial Crisis Happened, and What to
Do about It, presents a manifesto for the repair of our financial systems
and institutions. Shiller presents both short term and long term actions that
he believes will restore confidence and lead to ongoing stability. Here’s an
excerpt, from the beginning of Chapter 5, “A Bailout By Any Other Name,” pp.
87-88: Virtually all the solutions to
the subprime crisis already tried or already proposed in the United States
have aspects of a bailout to them. This is true of the interest rate cuts by
the Fed; the Fed's lending to troubled institutions under the auspices of the
TAF, the TSLF, and the PDCF; the tax rebate checks mailed out to individuals;
the extension of loan limits by the FHA; and the extension of mortgage ceilings
by the government-sponsored enterprises Fannie Mae and Freddie Mac. Let us be clear about what the
word bailout means. Actually the term has only recently acquired prominence,
and the word itself is not yet even listed in the Oxford English Dictionary.
A bailout is a rescue by the government or another entity of an
irresponsible person or entity arising from a failure to follow rules or take
reasonable precautionary steps. In the popular use of the term, a parent who
offers a late-night meal to a child who refused to sit down at the family
dinner, and is now whining about being hungry, is offering a bailout. The earliest use I could find
of the word bailout in this sense, from a computer search of
English-language newspapers, was in 1950, in the context of criticizing the
activities of the Reconstruction Finance Corporation, established during the
Great Depression to rescue failing companies by lending them money. Prior to
that, the term appears to have been used exclusively to refer to the act of a
pilot parachuting from an airplane in trouble. Of course, any postcontract
government action that invalidates a prior contract or expectation will be
called unfair by some. In the nineteenth century the preferred expressions
were the "sponge of insolvency" or "premium on hazard and
overtrading" But the term bailout is more intense, with its
suggestion of abandoning an aircraft in midflight—leaving it to crash and
burn on someone else. Shiller
is knowledgeable and clever, and The
Subprime Solution’s 200 pages can be read briskly. What follows reading
this book is thoughtful reflection about whether or not we agree with his
approaches. Steve
Hopkins, November 20, 2008 |
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The recommendation rating for
this book appeared in the December 2008 issue of Executive Times URL for this review: http://www.hopkinsandcompany.com/Books/The Subprime Solution.htm For Reprint Permission,
Contact: Hopkins & Company, LLC • E-mail: books@hopkinsandcompany.com |
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