Robert Shiller - fixing the financial system

1 Nov 2010
Originally uploaded by YaleUniversity

Background: Prof Shiller has written books on financial markets, behavioural economics, macroeconomics, real estate, statistical methods, and public attitudes and moral judgements about markets. He offers a plan to fix the financial system.


Presenter --
What were some of your group's policy recommendations?

Robert Shiller --
Well, the policy recommendations have a broad spectrum. And there are a lot of them! The Dodd-Frank bill that came in overlapped with our proposals. But maybe our proposals are a little different, more refined and developed in some dimensions. So, the proposals that we have in the report are really based on financial theory as updated by recent developments. They emphasize a couple of principles of finance that we wish to explain.

One of them is the ROLE OF GOVERNMENT. It has to be defined in terms of market failures. A very important market failure is the SYSTEMATIC INSTABILITY OF THE WHOLE ECONOMY. We almost saw a collapse of our financial system. One bank failing leading to another bank failing. Also the regulations imposed on the financial sector should try to internalize the costs of the correction of any systemic failure onto the firm. So we're very focused for providing the RIGHT INCENTIVES.


Presenter --
Are there any challenges that may hinder the recommendations?

Robert Shiller --
Certainly! The financial system is immensely complex. It has a lot of hard-wired complexity. It's difficult. So that's why the Dodd-Frank bill is so frustratingly vague. No one can lay out a map for generating a financial system from scratch all at once. It's got to be a process of learning.

Presenter --
Do you think the report is having an impact?

Robert Shiller --
Well Barney Frank is saying [xyz]

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