Fighting the Next Global Financial Crisis

Investors hunt for news from many sources and assess the reliability. Investor attention can focus on surprising trends, and regulators must adapt to shifting narratives and moods, explains Robert Shiller, Yale economics professor and the 2013 Nobel laureate in economics. Shiller details the history of money-market funds and the threat of mass withdrawals during the 2008 global financial crisis. The funds in question, ready to pay investors 97 cents on the dollar, were not in crisis mode, but some investors were wary in 2008 and unaccustomed to losses once common with inflation. The US Securities and Exchange Commission, as regulators, swiftly guaranteed the funds for one year and acted later to reduce the money-market funds’ vulnerability. Anticipating the emerging narratives is a challenge for both investors and regulators. “As long as we have an economic system that produces growth by rewarding inspired actors and investors, we will face the risk that adverse talk and stories can suddenly and temporarily overwhelm the inspiration,” Shiller concludes, adding that “the most urgent regulations will always be time- and context-specific, because narratives change.” – YaleGlobal

Fighting the Next Global Financial Crisis

Surprising narratives can emerge as investors assess large information streams; regulators can struggle to keep with up with what commands investor attention
Robert J. Shiller
Wednesday, May 18, 2016

Read the article from Project Syndicate.

Robert J. Shiller, a 2013 Nobel laureate in economics, is professor of economics at Yale University and the co-creator of the Case-Shiller Index of US house prices. He is the author of Irrational Exuberance, the third edition of which was published in January 2015, and, most recently, Phishing for Phools: The Economics of Manipulation and Deception, co-authored with George Akerlof.

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