Financial Democracy - Some Important Web Sites
By Robert J. Shiller
This page lists some web sites that relate to
innovations in finance that appear to
have the possibility of creating real social value, that promise to make our world a
more stable and prosperous environment for all of us. Insurance,
public finance, and sources of background information are included. The choice of web sites
follows the sense of important financial innovation that was described in my books Macro Markets: Creating Institutions
for Managing Society's Largest Economic Risks, Oxford University Press 1993, The
New Financial Order: Risk in the 21st Century Princeton University Press, 2003, Subprime Solution:
How Today's Global Financial Crisis Happened and What to Do about It Princeton University Press 2008 . I can't
vouch for all these web sites, I am including some experimental sites that are just
beginning and have not been proven.
Initiatives of MacroMarkets, LLC and Associated Firms
My colleagues and I have founded a firm
MacroMarkets LLC to create new vehicles for
management of broad classes of risks. Mr. Samuel Masucci is now the CEO of this firm, based in Madison NJ.
On May 22, 2006 the Chicago Mercantile Exchange with the collaboration of MacroMarkets LLC launched
futures and options contracts
on U.S. home prices for ten U.S. cities and for a U.S. aggregate. The contracts are cash settled based on the
Standard & Poor's/Case-Shiller Home Price Indices
that Karl E. Case and I originally pioneered, and that are now produced
by Fiserv, Inc.. with the collaboration of Standard & Poor's. These contracts now allow
both businesses and individuals to hedge their real estate risks.
On November 30, 2006 the American Stock Exchange, now acquired by the
New York Stock Exchange , with the collaboration of MacroMarkets LLC launched
MacroShares tied to oil prices with a benchmark of $60 per barrel, both a direct oil (trading symbol UCR for "Up Crude") and an inverse
oil (trading symbol DCR for "Down Crude"). These securities allowed both individuals and institutions to protect themselves against either
underexposure or overexposure to energy price risks, thereby dealing with an important risk in people's lives.
These securities reached US$1.5 billion in market value before automatically stopping out in April 2008 upon the
price of oil reaching $111 per barrel, 185% of the benchmark price.
On July 1, 2008, the American Stock Exchange, with the collaboration of MacroMarkets LLC launched a new series of
MacroShares tied to oil prices, replacing UCR and DCR, with a benchmark of $100 per barrel, both a direct oil (trading symbol UOY) and an inverse
oil (trading symbol DOY). These are transferred to the New York Stock Exchange following
its acquisition of the American Stock Exchange
MacroMarkets LLC has filed with the U.S. Securities and Exchange Commission to issue in collaboration
with the New York Stock Exchange and Standard & Poor's MacroShares tied to home prices, both a
direct home price (trading symbol UMM for " Up Major Market"e;) and an inverse home price (trading symbol DMM for
" Down Major Market").
MacroMarkets LLC has filed with the U.S. Securities and Exchange Commission to issue a
direct medical cost (trading symbol UPM for " UP Medical") and an inverse medical cost
(trading symbol " DNM " for DowN Medical).
Each of the above new products creates new opportunities for all people, and institutions helping people, to manage fundamental risks
that matter to their lives. All of these products are motivated by a mission to democratize finance.
New Trading Platforms
City Index created futures
markets on UK home prices in October, 2001, now discontinued.
created a similar service in 2002, now discontinued.
Spreadfair (Cantor Index) has launched spread betting on home prices after
City Index and IGIndex discontinued theirs.
The The Chicago Climate Exchange
has important functions in managing environmental risks.
Volitional Partners proposes a Proprietary
Platform the allows projects and tasks within a company to be owned jointly by the company
and the employees.
The Alice Corporation has a trading platform
for all sorts of quantifiable risks.
The Iowa Electronic Markets,at the University of Iowa, starting in 1988,
pioneered futures contracts that
pay off on future economic and political events.
Tradesports.com is an Irish firm that allows betting on world events,
such as election or ouster of world leaders. Even after the DARPA terrorism futures scandal, Tradesports
continued to trade terrorism events like the U. S. terrorism alert levels and the capture of Saddam Hussein.
When the terrorism futures scandal broke in the U. S., Tradesports created a contract on
the ouster of John Poindexter
as head of DARPA.
www.betfair.com and www.intrade.com allow customers
to place bets not only for
sporting events but for financials and other world events.
ValmarPro Forecasting, Inc. offers another market-based forecasting service.
William Hill, founded in 1934 is a
UK sports betting firm
that now also makes markets on world events such as presidential elections.
www.ideosphere.com, hosted by Lucifer Media Corp. of Canmore, Alberta, Canada,
has created a "Foresight Exchange" that allows trade on a range of possibilities, including elections, world events, and
science and technology developments.
ExchangeRepublic.com in Hong Kong offers a Dutch auction system to allow
trading of of new kinds of derivatives such as options on housing prices or economic data .
The Primex Auction is an electronic network for trading U. S. securities that
provides bidding participants with unique ways of pre-registering
their bidding interest to more quickly interact with orders being auctioned.
Risk Management Software
William Sharpe's Financial Engines web site offers
a personal asset manager allowing people to make better risk management decisions.
Laurence Kotlikoff and Jegadeesh Gokhale's ESPlanner offers financial planning software
that is strong on life-cycle calculations.
Ron Dembo's Algorithmics, Inc. in Toronto, Canada,
offers software that facilitates integrated risk management for businesses, using
a "Mark to the Future" paradigm.
Riskmetrics Group has web-delivered models that
stress-tests investor portfolios.
Real Estate Risk Management
The historic Home Equity Assurance Program
was set up in Oak Park Illinois in 1977 to protect homeowners against the risk of declines
in the prices of their homes. This pathbreaking program was created by a
village ordinance and a
brochure that explained the program to residents.
The Syracuse Home Equity Protection Program offers homeowners insurance policies against
the decline in value of an index of Syracuse home prices. Rep. Jim Walsh issued a
press release describing this program in July 2002.
Rex & Co offers to
purchase shares in individual homes, thereby allowing individuals to reduce their home price risks.
Andrew Caplin, Thomas Cooley, Noel Cunningham and Mitchell Engler advocate in the Wall Street Journal
a change in tax law that would make
Shared Appreciation Mortgages
possible in the United States, and allow people to manage their risks better.
Markets for inflation risk
Many governments issue inflation indexed securities.
The first to do so was the state of Massacusetts in 1780 (see my paper under references).
The US government has issued
Treasury Inflation Indexed Securities
also known as Treasury Inflation-Protected Securities (TIPS) starting 1997.
The US government also issues
Series I Savings Bonds for
Risk Management Societies
International Swaps and Derivatives Association
Global Association of Risk Professionals
International Association of
Financial Engineers (IAFE)
Alternative Investment Management Association
Chartered Alternative Investment Analyst Association
Robert J. Shiller
Cowles Foundation for Research in Economics
International Center for Finance
30 Hillhouse Avenue
New Haven, CT 06511
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