In a refreshing change, Robert Shiller makes the case for financial innovation. Along the way he lists some ideas about where financial innovation could go. I like this one in particular:
I have proposed the idea of “continuous workout mortgages”, motivated by basic principles of risk management. The privately issued mortgage would protect against exigencies such as recessions or drops in home prices. Had such mortgages been offered before this crisis, we would not have the rash of foreclosures. Yet, even after the crisis, regulators seem to be assuming a plain vanilla mortgage is just what we need for the future.Financial innovation may one day actually serve to prevent financial crisis from ever emerging
