Robert Shiller on the bubble and the bailout

A brief interview in Der Spiegel, from 7 October 2008, still timely.  Shiller says the policymakers’ biggest mistake was in failing to recognize or do anything about the housing bubble until it was too late.  Unfortunately, the interview does not include follow-up questions on what might have been done to gently deflate the bubble, but Shiller probably addresses that in his current book.  (I’ll post some words on that when I get it.)

Unlike most other economists I’ve read, Shiller actually kind of liked the initial bailout plan — i.e., for the government to buy up to $700 billion of toxic mortgage securities from banks.   Kind of:  “It’s like plugging holes in a sinking ship. You only have so many hours before the ship goes down. You can’t think about how the ship should be designed or nautical engineering.”  I wonder what he thinks of the revised plan for bank capital injections.

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