Regulating to Avoid the Next Financial Crisis

Whatever the cause of the subprime mortgage crisis to a full-blown credit crunch, it is clear that in the core were bad mortgages to borrowers who do not understand the long-term impact of the loan by the lenders who made their own self-interest. Meanwhile, credit card balances and delinquencies, which are partly ineffective and conditions are caused by confusing information, leaps and bounds. And, with no simple and automatic ways to rescue the savings rate of households at or below 1% remain. A newApproach to the way we write the rules for the purchase of real property, getting credit cards and managing our finances is needed, based one on the real-world human behavior, not just economic theory. Regulations governing these transactions can play a constructive role if they have a better adaptation of both the consumer and the behavior of producers, incentives and self-interest. On 17 October is the Asset Building Program at the New America Foundation is the publication of a seminal work on this issue through the timelyProfessors Michael Barr of the University of Michigan Law School, Sendhil Mullainathan of Harvard University, and Eldar Shafir of Princeton University. Propose using the tools of Behavioral Economics, Professors Barr, Mullainathan and Shafir, three of the leaders of the nation in this area - that the regulators will on both the "rules of the game pay for it" - what to say or do for a provider, and the "scoring" - the reward or punishment for obeying or ignoring the rules. On the basis of this newFramework, the authors propose ten o'clock innovative ideas for regulating mortgages, credit cards and bank accounts for the rescue.



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