Look to the Future
Creating a lasting recovery means learning from the mistakes of the housing collapse so that the country can avoid future crises. "The mentality of most people in confronting a crisis is to view it as just 'this crisis,'" says Shiller. "So we're in a ship that's damaged and may be sinking, so we're just thinking of anything to do to stop from sinking. But we should also be thinking about building better ships."
In Shiller's opinion, avoiding similar crises in the future means ensuring that neither individuals nor banks are so exposed to real estate risk as they were during the housing boom. One measure he advocates is to have "preplanned workouts" built into mortgages, providing homeowners with an agreed-upon way to modify their terms. This is one lesson that the United States can learn from HAMP, he says: "[HAMP was] trying to encourage workouts, and banks thought, 'If we do some of these, then everyone's going to want a workout." The solution, says Shiller, is to allow banks to make these modifications a part of their business models. "Let's get the banks to plan the workouts and price them out and make a business of a mortgage that has a preplanned workout," he says.