Continuous Workout Mortgages: Efficient Pricing and Systemic Implications

By Robert J. Shiller, Rafal M. Wojakowski, M. Shahid Ebrahim, and Mark B. Shackleton

This paper studies the Continuous Workout Mortgage (CWM), a two in one product: a fixed rate home loan coupled with negative equity insurance, to advocate its viability in mitigating financial fragility.

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What Is Bitcoin Really Worth? Don’t Even Ask.

Dabbling in Bitcoin lies somewhere between gambling and investing.

After all, true investing requires a rational appraisal of an asset’s value and that is simply not possible at present with Bitcoin. Real understanding of the economic issues underlying the cryptocurrency is almost nonexistent.

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A Stock Market Panic Like 1987 Could Happen Again

Oct. 19, 1987, was one of the worst days in stock market history. Thirty years later, it would be comforting to believe it couldn’t happen again.

Yet that’s true only in the narrowest sense: Regulatory and technological change has made an exact repeat of that terrible day impossible. We are still at risk, however, because fundamentally, that market crash was a mass stampede set off through viral contagion.

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Another Nobel Surprise for Economics

The winner of this year’s Nobel Memorial Prize in Economic Sciences, Richard Thaler of the University of Chicago, is a controversial choice. Thaler is known for his lifelong pursuit of behavioral economics (and its subfield, behavioral finance), which is the study of economics (and finance) from a psychological perspective. For some in the profession, the idea that psychological research should even be part of economics has generated hostility for years.

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The Coming Bear Market?

The US stock market today is characterized by a seemingly unusual combination of very high valuations, following a period of strong earnings growth, and very low volatility. What do these ostensibly conflicting messages imply about the likelihood that the United States is headed toward a bear market?

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Mass Psychology Supports the Pricey Stock Market

Canny stock investors are like judges in a quirky beauty contest. They aren’t looking for real beauty but for qualities that other people believe still other people will find beautiful.

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The Transformation of the ‘American Dream'

“The American Dream is back.” President Trump made that claim in a speech in January. They are ringing words, but what do they mean? Language is important, but it can be slippery. Consider that the phrase, the American Dream, has changed radically through the years.

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Why Do Cities Become Unaffordable?

NEW HAVEN – Inequality is usually measured by comparing incomes across households within a country. But there is also a different kind of inequality: in the affordability of homes across cities. The impact of this form of inequality is no less worrying.

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In Long Run, There’s No Such Thing as an Einstein Investor

There are no easy answers in investing. It is tempting to replicate a successful strategy — one created by an outstanding investor, like Warren Buffett, or through in-depth statistical analysis of the wisdom of crowds — and such approaches can actually work for long periods.

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Understanding Today’s Stagnation

NEW HAVEN – Ever since the “Great Recession” of 2007-2009, the world’s major central banks have kept short-term interest rates at near-zero levels. In the United States, even after the Federal Reserve’s recent increases, short-term rates remain below 1%, and long-term interest rates on major government bonds are similarly low. Moreover, major central banks supported markets at a record level by buying up huge amounts of debt and holding it.

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How Tales of ‘Flippers’ Led to a Housing Bubble

There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future.

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Caution Signals Are Blinking for the Trump Bull Market

Despite an eight-day losing streak that ended on Tuesday, the stock market has generally been buoyant in the opening weeks of the Trump administration. The bullish mood could be a self-fulfilling prophecy and lead to continuing gains for a while.

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Robotization Without Taxation?

NEW HAVEN – The idea of a tax on robots was raised last May in a draft report to the European Parliament prepared by MEP Mady Delvaux from the Committee on Legal Affairs. Emphasizing how robots could boost inequality, the report proposed that there might be a “need to introduce corporate reporting requirements on the extent and proportion of the contribution of robotics and AI to the economic results of a company for the purpose of taxation and social security contributions.”

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Why Trump’s 2-for-1 Rule on Regulations Is No Quick Fix

President Trump intends to pare back a vast array of government regulations in fields like environmental protection, food and drug safety, and consumer finance. On Jan. 30 he ordered that for every new regulation it imposes, the government must get rid of two old ones.

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Narrative Economics

This address considers the epidemiology of narratives relevant to economic fluctuations. The human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact. The 1920-21 Depression, the Great Depression of the 1930s, the so-called “Great Recession” of 2007-9 and the contentious political-economic situation of today, are considered as the results of the popular narratives of their respective times. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future.

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The Illusions Driving Up US Asset Prices

NEW HAVEN – Speculative markets have always been vulnerable to illusion. But seeing the folly in markets provides no clear advantage in forecasting outcomes, because changes in the force of the illusion are difficult to predict.

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Making America Great Again Isn’t Just About Money and Power

“Make America Great Again,” the slogan of President-elect Donald J. Trump’s successful election campaign, has been etched in the national consciousness. But it is hard to know what to make of those vague words. 

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