The name Shiller pops up often in news stories about the collapse of the housing market because Robert Shiller is the co-creator of the Case-Shiller Index for tracking house prices. He’s a thoughtful and amusing number-cruncher who in a recent speech floated the novel idea of creating ‘house price insurance’ to guard against the present-day phenomenon of negative equity, that is, holding a mortgage for more money than the house is worth.
This state of affairs, also charmingly termed ‘being underwater’, now affects 12 million U.S. households and is blamed for a lot of the weakness in our consumer-sensitive economy. Shiller says it would work like fire insurance—you take out a policy upon buying a house that ties your future payments to the surrounding market. If your house becomes less valuable, you pay a lower monthly note.
Innovations in the way we do business like these sound slightly wacko at first, but big upheavals lead to experimentation, and suddenly we can’t imagine doing things any other way. Federal deposit insurance, unemployment insurance, food stamps and Social Security all must have looked peculiar when first proposed, too. I’ll bet money that the Obama inauguration speech or one coming very soon after it will have some startling proposals like this one.
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