Word: shiller
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That month, stock prices started to fall. The slide continued for 2 1/2 years. Then, for the second edition of Irrational Exuberance, published in February 2005, Shiller added a chapter on real estate. His argument: House prices had followed the stock market into a flight of fancy that was bound to end badly...
...timing of that market call wasn't quite as spot-on as that of March 2000. But it was close. According to the S&P/Case-Shiller indexes devised by Shiller and Wellesley College's Karl Case, the rise in house prices slowed in the latter half of 2005, then headed south in summer...
...know the rest of that story. House prices are still falling, and Shiller has attained a remarkable status in financial circles. He's the guy who called the past two busts, a hero to market bears everywhere, a fixture on CNBC and in the nation's financial pages...
...this guy a genius, or just lucky? "There was some luck, but I don't want to say it's just luck," Shiller says. "It was also me thinking something crazy was going on here, and I just wanted to say it." This is not some Wall Street sharpie talking, but a floppy-haired, 62-year-old scholar with a gentle, meandering way of explaining the world. Shiller's new book, The Subprime Solution: How Today's Global Financial Crisis Happened and What to Do About It, offers a succinct sample of this worldview, which we'll get to. First...
...Shiller spent much of his early academic career--he earned a Ph.D. from MIT in 1972 and has been teaching at Yale since 1982--making the case that stock-market prices jump around more than is warranted by economic fundamentals. This may sound obvious, but it was for a time heresy among finance scholars, who believed markets were paragons of informed rationality. Since then, the academic consensus has shifted in Shiller's direction. But identifying exactly when prices have gotten out of hand isn't easy...