Have just finished reading Robert Shiller's The Subprime Solution which offers plenty of food for thought. Provocative and unsettling stuff.

Shiller argues that the the impact of the US housing bust could last for years. "It is impossible to predict the nature and extent of the damage that the current economic and social dysphoria and disorder will create. But a good part of it will likely be measured in slower economic growth for years to come. We may well experience several years of a bad economy, as occurred, for example, after the profligate mortgage lending booms in both Sweden and Mexico in the early 1990s. There could be another 'lost decade' like that suffered by Mexico in the 1980s after its spending spree during the oil price boom, or by Japan in the 1990s after the bursting of the 1980s bubble in its stock and housing markets...While we may wish to think of the subprime problem as a one-act play, soon to end, it could in fact be but the first act of a long and complex tragedy."

Shiller, one of the founders of the behavioral finance school of economics, argues that boom thinking creates a "social contagion".

He compares it to a disease, pointing out that every disease has a contagion rate (the rate at which the disease is spread from person to person) and a removal rate (where people either succumb or recover). "Sooner or later, some factor boosts the infection rate sufficiently above the removal rate for an optimistic view of the market to become widespread. There is an escalation in public knowledge of the arguments that would seem to support that view, and soon the epidemic spirals up and out of control ... psychological, epidemiological and economic theory all point to an environment in which feedback of enthusiasm for speculative assets, or feedback of price increases into further price increases can be expected to produce speculative bubbles from time to time."

What's needed, Rubin says, are stronger risk management institutions to inhibit the growth of bubbles. And in his most radical moment, he says we need to widen the market, not curtail it, and democratize it through such mechanisms as improving financial information infrastructure and extending the scope of financial markets to cover more risks, including real estate. That would include real estate futures. He proposes Governments to issue debt indexed to their GDP, continuous work out mortgages, home equity insurance and livelihood insurance.

"Modern finance, applied democratically, can relegate these problems to history just as modern medicine, applied widely, has left us forgetting that epidemics of yellow fever and diphtheria ever raged among us." There are a number of problems facing landlords at the moment, not just brought about by problem tenants!