American bankruptcy law has offered a "fresh start" in every state for over one hundred years. As a result, econometric studies of consumer bankruptcy often focus on one of the few aspects of the law that has varied significantly across time and across states: exemptions. Professors Gropp, Scholz and White published the first article to test the effect of exemptions on credit markets. Consistent with theory, they found that residents of states with larger exemptions pay higher interest rates (...) than those in states with lower exemptions and face an increased probability that they will be denied credit. These effects were most pronounced for poor households. This result is surprising because exemptions only allow a household to keep what it has. The difference between a $100,000 exemption and an exemption with no dollar limit should not matter if the household has little or no assets to exempt. This essay examines alternative explanations for why exemptions appear to have a disproportionate impact on the poor. Unfortunately, however, none of these alternative explanations proves entirely satisfactory. (shrink)

In this paper we examine some of the economic and ethical consequences of different credit market regulations, including usury laws, complete prohibition of interest and providing ease to the borrower upon default. The references to these credit market regulations can be found in many religious and moral philosophy texts. We first examine the effectiveness of these regulations in deterring exploitative lending by developing a model that shows lending can be regulated through either act-based or harm-based regulations. We show (...) that act-based regulations which comprise usury laws and complete prohibition of interest deter lenders more than harm-based regulations which constitute bankruptcy laws. We then analyze that while the regulations may deter certain forms of lending behavior, they may also create certain externalities by contributing towards inequity and societal risk. We propose that a regulator’s choice of implementing credit market regulations maybe dependent on her ethical commitment towards growth and reduction of inequity. We suggest the usury laws are more ethical than bankruptcy laws; however, discouraging the use of debt contracts through prohibition of interest and encouraging the use of risk sharing contracts maybe the most ethical way to regulate the credit markets. (shrink)

This Article explores the relationship between consumer credit markets and bankruptcy policy. In general, I argue that the causative relationships running between borrowing and bankruptcy compel a new strategy for policing the conduct of lenders and borrowers in modern consumer credit markets. The strategy must be sensitive to the role of the credit card in lending markets and must recognize that both issuers and cardholders are well placed to respond to the increased levels of (...) spending and indebtedness. In the latter parts of the Article, I recommend mandatory minimum payment requirements, a tax on distressed credit card debt, and the subordination of payments to credit card lenders in bankruptcy. I also argue that many aspects of the American bankruptcy system, as recently reformed, are overly protective of credit card issuers. (shrink)

Social banks are financial intermediaries paying attention to non-economic (i.e., social, ethical, and environmental) criteria. To investigate the behavior of social banks on the credit market, this paper proposes both theory and empirics. Our theoretical model rationalizes the idea that reciprocity can generate better repayment performances. Based on a unique hand-collected dataset released by a French social bank, our empirical results are twofold. First, we show that the bank charges below-market interest rates for social projects. Second, regardless of their (...) creditworthiness, motivated borrowers respond to advantageous credit terms by significantly lowering their probability of default. We interpret this outcome as the first evidence of reciprocity in the credit market. (shrink)

Micro Credit programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting forthe presence of asymmetric information in underdeveloped financial markets. MC Programs have achieved what the conventional financial institutions and the government have not been able to: lend to the poor, recuperate loans and have a positive impact in poverty reduction. While loan recuperation is high (95% for our focus group ALSOL Chiapas), administrative costs also remain high. Social (...) Responsible Savers and Donors play a key role in providing continuous funding to Micro Credit Programs. (shrink)

We propose that local corruption distorts the allocation of government-controlled resources and impairs the contract environment, thereby reducing firms’ use or suppliers’ provision of trade credit. We use a sample of Chinese-listed firms from 2007 to 2020 to examine the role of local corruption in firms’ access to trade credit and find that the level of local corruption is negatively related to firms’ trade credit use. This effect is more pronounced in firms with weak (vs. strong) internal (...) governance, slack (tight) external monitoring and high (low) supplier concentration. The results of path analysis show that local corruption extends short-term bank loans as well as government subsidies and impairs firms’ accounting quality, thereby inhibiting firms’ demand for or suppliers’ provision of trade credit. Moreover, the post-2012 anti-corruption campaign in China plays a significant role in correcting the misallocation of trade credit caused by corruption. The results of this study illuminate the negative external effects of local corruption on trade credit. (shrink)

This chapter argues for deregulation of the credit-rating market. Credit-rating agencies are supposed to contribute to the informational needs of investors trading bonds. They provide ratings of debt issued by corporations and governments, as well as of structured debt instruments (e.g. mortgage-backed securities). As many academics, regulators, and commentators have pointed out, the ratings of structured instruments turned out to be highly inaccurate, and, as a result, they have argued for tighter regulation of the industry. This chapter shows, (...) however, that the role of credit-rating agencies in achieving justice in finance is not as great as these commentators believe. It therefore argues instead for deregulation. Since the 1930s, lawgivers have unjustifiably elevated the rating agencies into official, legally binding sources of information concerning credit risk, thereby unjustifiably causing many institutional investors to outsource their epistemic responsibilities, that is, their responsibility to investigate credit risk themselves. (shrink)

Petersen and Lippert-Rasmussen argue that persons who decide to be organ donors should receive a tax break, and then defend their view against eight possible objections. However, they misunderstand the Titmuss-style concerns that might be raised against their proposal. This does not mean that it should be rejected, but, instead, that when it is reconfigured to meet the Titmuss-style charges against it, they should support legalizing markets in human organs rather than merely offering tax breaks to encourage their donation.

Starting from MacIntyre’s virtue ethics, we investigate several codes of conduct of banks to identify the type of virtues that are needed to realize their mission. Based on this analysis, we define three core virtues: honesty, due care, and accuracy. We compare and contrast these codes of conduct with the actual behavior of banks that led to the credit crisis and find that in some cases banks did not behave according to the moral standards they set themselves. However, although (...) banks and the professionals working in them can be blamed for what they did, one should also acknowledge that the institutional context of the free market economy in which they operated made it difficult to live up to the core values lying at the basis of the codes of conduct. Given the neo-liberal free market system, innovative and risky strategies to enhance profits are considered desirable for the sake of shareholder’s interests. A return to the core virtues in the financial sector will therefore only succeed if a renewed sense of responsibility in the sector is supported by institutional changes that allow banks to put their mission into practice. (shrink)

Starting from MacIntyre’s virtue ethics, we investigate several codes of conduct of banks to identify the type of virtues that are needed to realize their mission. Based on this analysis, we define three core virtues: honesty, due care, and accuracy. We compare and contrast these codes of conduct with the actual behavior of banks that led to the credit crisis and find that in some cases banks did not behave according to the moral standards they set themselves. However, although (...) banks and the professionals working in them can be blamed for what they did, one should also acknowledge that the institutional context of the free market economy in which they operated made it difficult to live up to the core values lying at the basis of the codes of conduct. Given the neo-liberal free market system, innovative and risky strategies to enhance profits are considered desirable for the sake of shareholder’s interests. A return to the core virtues in the financial sector will therefore only succeed if a renewed sense of responsibility in the sector is supported by institutional changes that allow banks to put their mission into practice. (shrink)

Micro Credit (MC) programs lend money to poor borrowers using innovative mechanisms such as group lending under joint liability while successfully accounting for the presence of asymmetric information in underdeveloped financial markets. MC programs have achieved what the conventional financial institutions and the government have not been able to: lend to the poor, impressive loan recuperation, and a positive impact in poverty reduction. This article analyzes the performance of ALSOL, an MC program in Chiapas, México, for 2151 participants (...) in urban and rural areas for the time period between July 2000 and July 2001. While loan recuperation is high (95%), administrative costs also remain high. Socially responsible lenders and donors play a key role in providing continuous funding to MC programs and assisting in reducing the level of poverty. (shrink)

In the so-called “international credit market crisis,” which started in the second half of 2007 in the US subprime mortgage market, financial derivatives, most notably credit default swaps (CDS), have been publically blamed for having caused, or at least aggravated, the economic and monetary debacle. However, sound economic [...].

In this paper, I show that Polleit and Mariano (2011) are right in concluding that Credit Default Swaps (CDS) are per se unobjectionable from Rothbard’s libertarian perspective on property rights and contract theory, but that they fail to derive this conclusion properly. I therefore outline the proper explanation. In addition, though Polleit and Mariano are correct in pointing out that speculation with CDS can conceivably hurt the borrowers’ interests, they fail to grasp that this can be the case only (...) in some peculiar circumstances that I identify. In other words, they miss the bigger picture, the one outside special circumstances, in which CDS trading has the opposite effect. That is, CDS facilitate debt accumulation, including government debt accumulation. Finally, I point out how this can precipitate the collapse of fiat money regimes. An incidental goal of the analysis is to provide a better account than Polleit and Mariano of recent government interventions in and around CDS markets. (shrink)

Elizabeth Anderson exalts the transition from the aristocratic to the modern ethic of debt as one of the most significant cultural achievements of capitalism. Whereas the debitor was once forced to compromise his liberty, dignity, and equality, today the rights and freedoms of insolvents are legally protected, and disadvantaged members of the community can readily obtain credit without personal supplication. Anderson’s intuition was, until recently, widely shared. Then came the financial crisis of 2007-08 and the ensuing global recession, triggered (...) by mass defaults among “sub-prime” borrowers. Many had entered the mortgage market with no proof of income, no assets behind them, no down-payment, a chequered credit history, and a generally reduced repayment capacity. Suddenly a flurry of criticism was unleashed against the lowering of credit standards and the government programs which pressured lenders to service the poor. My aim in this paper is not to assess the democratization of credit from the point of view of economic efficiency or political prudence, but rather to provide a much needed ethical appraisal. Any number of reasons might be advanced for why a particular government policy is morally objectionable. I will concentrate on the least controversial reason conceivable: the policy violates the rights of citizens. Whether this is true of government-driven credit-democratization - specifically, whether it violates the rights of the lenders compelled to act as agents of the policy, the rights of the third parties exposed to the risks associated with the expansion of credit markets, or both – is the question that I take up here. (shrink)

The history of Credit Rating Agencies [CRAs], commonly called Rating Agencies, has a long and distinguished trajectory marked by influence, reputation and power. Due to the ability of this field to instigate significant changes in market regulations and actions of economic actors, this subject is extensively debated within the literature. In economic sociology, while some studies have focused on perceptions of performativity and market devices to understand how the calculability of its methods influences the economy, others, along relational lines (...) of sociology, aim to understand them through a more complex constructive process. In this study, we attempt to fill a gap by exploring the complementarity between two theoretical approaches to sociology: theory of fields and performativity. Thus, we mobilize theory of fields to understand the inter-field relationship between the State and CRAs. Specifically, this paper sets out to i) analyze the co-constitution of the state and market fields with the field of CRAs; ii) describe the existing regulation and situate the CRAs and their classification devices in the broader history of the State and the market; iii) analyze how the legitimation of the CRAs by the State generates broader social contexts that assist in the performative work of the CRAs. Based on historical documentary research, we analyze some of the main milestones and regulatory events in the field of CRAs. This research reaffirms the assumption that even after credibility crises, the State is the most significant predictor of legitimacy, power, and influence that CRAs hold to date. The legitimacy of this power and influence has yet to be exhausted because the reputation of CRAs is rooted in the reputation of the State itself. This happens because the State provides essential actions (such as regulations) for the existence of the financial market. Thus, results suggest that the State, through regulatory measures, can engage several other fields to promote the legitimacy of performative work of the CRAs, whose purpose is to provide calculation tools to shape markets. (shrink)

In 1948, when the State of Israel was founded, 125,000 people were members of credit cooperative societies, which provided over 20 percent of all market financing. For several years this number continued to rise, reaching a total of 250,000 members in more than 100 credit cooperative societies. Credit associations — part of the thriving cooperative movement of early Zionism — symbolized the attempt to create a new and just Jewish society by fusing socialist and capitalist ideals. From (...) the mid-1950s, however, in a rapid process of centralization of Israel’s capital market and financial institutions, almost all credit associations were absorbed into Israel’s commercial banks and dissolved. Today, Israel’s two largest banks control over 63 percent of credit provision, and 90 percent of credit is provided to less than 1 percent of borrowers. The official policy of the Bank of Israel is to rule out the establishment of credit associations, credit unions or other non-bank financial institutions. In the light of current renewed interest in "social businesses," i.e., innovative business models designed to achieve desired social outcomes, this Article traces the waning of credit associations in Israel, and the role law has played in that process. Their disappearance from the capital market marked not only a change in economic policy, but also the final abandonment of the ideals which underlay the provision of cooperative financial services: mutuality, partnership and solidarity. (shrink)

ABSTRACT By means of the high ratings that they awarded to subprime mortgage‐backed bonds, the three major rating agencies—Moody's, Standard & Poor's, and Fitch—played a central role in the current financial crisis. Without these ratings, it is doubtful that subprime mortgages would have been issued in such huge amounts, since a major reason for the subprime lending boom was investor demand for high‐rated bonds—much of it generated by regulations that made such bonds mandatory for large institutional investors. And it is (...) even less likely that such bonds would have become concentrated on the balance sheets of the banks, for which they were rewarded by capital regulations that tilted toward high‐rated securities. Why, then, were the agencies excessively optimistic in their ratings of subprime mortgage‐backed securities? A combination of their fee structure, the complexity of the bonds that they were rating, insufficient historical data, some carelessness, and market pressures proved to be a potent brew. This combination was enabled, however, by seven decades of financial regulation that, beginning in the 1930s, had conferred the force of law upon these agencies' judgments about the creditworthiness of bonds and that, since 1975, had protected the three agencies from competition. (shrink)

We study the effect of scarcity on decision making by low income Swedes. We exploit the random assignment of welfare payments to study their borrowing decisions within the pawn and mainstream credit market. We document that higher educated borrowers borrow less frequently and choose lower loan to value ratios when their budget constraints are exogenously tighter. In contrast, low-educated borrowers do not respond to temporary elevated levels of scarcity. This lack of response translates into a significantly higher probability to (...) default and an 11.6% increase in borrowing cost. We show that a difference in access to liquidity and/or buffer stocks cannot explain our results. Instead a framework, where the awareness of self-control problems is positively correlated with education can explain that high-educated consumers choose a lower LTV as a commitment device to increase their likelihood to repay. Analogously, low-educated with less awareness of their future self-control problems, do not tie themselves to the mast and thus ignore the consequences of their credit decisions when focusing on solving acute liquidity problems. Our findings highlight that increased levels of scarcity risk reinforcing the conditions of poverty through overborrowing. (shrink)

We take a fresh look at the concerns about credit card pricing and empirically investigate whether the Credit CARD Act of 2009 has been successful in addressing those concerns. The rational choice theory of credit card pricing, which posits that issuers use back-end fees to adjust the price of credit to reflect new information about borrowers’ credit risk, predicts that issuers will respond to the Act by using alternative ways to price risk. In contrast, the (...) behavioral economics theory, which posits that issuers use back-end fees because they are not salient to consumers, predicts that issuers will respond by increasing unregulated non-salient prices. If the market is competitive, we argue that the CARD Act should also result in increases in some salient, up-front prices. But we show that if issuers have market power, reductions in non-salient fees may not result in concomitant increases in salient charges. We test these predictions using two datasets on credit card contract terms before and after the CARD Act rules went into effect. We find that the rules have substantially reduced the back-end fees directly regulated by the Act, including late fees and over-the-limit fees. However, unregulated contract terms, such as annual fees and purchase interest rates, have changed little. Post-CARD Act, consumers continue to face high long-term prices and low short-term prices, and imperfectly rational consumers still find it difficult to understand the cost of credit card borrowing. We thus consider potential improvements to the regulatory framework. We argue that improved disclosures that present to consumers the aggregate cost of credit under the contract, based on information about the borrower’s likely use of credit, would improve consumer outcomes. Furthermore, we suggest that regulators, rather than focusing on prices that are “too high,” should consider limiting the ability of issuers to charge introductory teaser interest rates that are in a sense “too low. (shrink)

ABSTRACT Asset‐market bubbles occur dependably in laboratory experiments and almost as reliably throughout economic history—yet they do not usually bring the global economy to its knees. The Crash of 2008 was caused by the bursting of a housing bubble of unusual size that was fed by a massive expansion of mortgage credit—facilitated, in turn, by the longest sustained expansionary monetary policy of the past half century. Much of this mortgage credit was extended to people with little net wealth (...) who made slender down payments, so that when the bubble burst and housing prices declined, their losses quickly exceeded their equity. These losses were transmitted to the financial system—including banks, investment banks, insurance companies, and the institutional and private investors who provided liquidity to the mortgage market through structured securities. It seems that many of these institutions became insolvent; it is certain that they became illiquid. Liquidity loss and solvency fears created a feedback cycle of diminished financing, reduced housing demand, falling housing prices, more borrower losses, and further damage to the financial system and eventually the stock market and the real economy. There are important parallels with the housing and financial‐market booms that led up to the Crash of 1929 and the Great Depression. (shrink)

Racial capitalism depends on the reproduction of an existing racialized economic order. In this article, I argue that the disavowal of past injustice is a central way in which this reproduction is ensured and that market-based forms of knowledge production, such as for-profit predictive practices, play a crucial role in facilitating this disavowal. Recent debates about the fairness of algorithms, data justice, and predictive policing have intensified long-standing controversies, both popular and academic, about the way in which statistical and financial (...) modes of accounting and predicting articulate, represent and produce ascriptive categories of hierarchically ordered social difference, and reproduce unjust social hierarchies and inequalities. These debates have productively problematized the racial lives of seemingly apolitical predictive technologies and demanded the re-politicization of predictive practices. What has been missing from these debates so far, however, is a more explicit engagement with ways in which anti-racist movements and activists themselves have contested the entanglements of prediction and race making. I turn to a recent prominent example, namely the contestation over racial discrepancies in subprime lending to examine how fair lending activists have conceptualized and troubled the reproduction of a racialized economic order through for-profit predictive practices in the decade before the Great Financial Crisis. I situate this particular example in the broader historical and political context of politicizing prediction that first emerged with the ascendancy of a liberal, individualist-proprietary conception of risk, and the political problem space to which this has given rise. My analysis shows that actuarial conceptions of fairness continue to reverberate in anti-racist contestations of for-profit predictive practices, and that they tend to marginalize and undercut more radical strands of critique of the racialization of financial markets. Insofar as these modalities of contestation implicitly reproduce a liberal, proprietary-individualist conception of risk, I argue, they fail to effectively challenge the quasi-alchemical transformation of injustice into personal responsibility, and thus contribute to the disavowal of past injustice. (shrink)

Credit distribution is uneven in the domestic financial market since it is relatively easy for listed companies, mainly state-owned enterprises, to obtain banks’ funds. Unbalanced credit distribution has caused some listed companies to participate in “Borrow to Lend” activities. Based on the traditional “financing priority” theory and credit rationing theory, this paper studies the “Borrow to Lend” shadow banking activities of China’s non-financial listed companies based on the 2007–2018 financial statement data of Chinese-listed companies and discusses the (...) micro-level and macro-level related factors behind this activity. The empirical results show that China’s non-financial listed companies, especially the state-owned enterprises, are participating in obvious “Borrow to Lend” activities. The real economy’s rate of return shows a negative relationship with “Borrow to Lend” activities at the level of individual companies and their industries. This article uses the exogenous growth part of M2 growth to measure monetary policy tightness in terms of macro and credit policies. It uses the ratio of state-owned enterprise loans to total corporate loans as an approximate indicator of the credit distribution structure. The empirical results indicate that state-owned enterprises’ “Borrow to Lend” activities have shifted in the same direction as the tightening of monetary policy after the financial crisis. The proportion of state-owned enterprise loans positively correlates with state-owned enterprises’ “Borrow to Lend” activities. (shrink)

Interest in credit ratings agencies and their role in financial markets is at an all-time high. Concerns about a lack of transparency concerning process, conflicts of interest, and limited competition are frequently discussed by politicians, regulators and other commentators. These issues we term the credit ratings agency trinity of solicitude. We shed some light on this trinity by considering the unique relationship that exists between corporate borrowers and the CRAs they engage to rate their securities. The exchange (...) relationships literature is used to create a model where commitment plays a central role. Technical qualities, relationship qualities and dependence are theorised as antecedents of commitment, which is described by two constructs of affective commitment and calculative commitment. The issuer’s intention to remain with the CRA, their loyalty, is the consequence of commitment. The model is operationalized by means of a survey questionnaire administered to issuers of corporate debt in the United Kingdom. As expected, perceptions of the quality of the relationship and affective commitment play an important role in CRA-issuer relations. However, contrary to expectations, the technical quality of the rating and issuer dependence on the CRA play little role in determining commitment and continuance. The implications of these findings are discussed along with areas for future research. (shrink)

The recent financial meltdown in the US mortgage markets and the ongoing budgetary crises in Europe suggest that we are at an economic and ethical crossroads. What has caused the problems? Do we need to rethink in some fundamental way our ethical notions and some of our practices? These questions clearly are not separable, for, as I shall argue, some of our ideas about corporate responsibilities, technological innovations, and nation states’ ability to regulate corporations have been a cause of (...) the recent problems. Key ethical notions need to be rethought. (shrink)

Households and banks have increasingly displaced non-financial businesses and governments as the primary debtors in modern capitalist economies, resulting in more severe economic cycles, increased inequality, and external macroeconomic imbalances. Yet while the trend is nearly universal among developed economies, its intensity varies a great deal from country to country. This article highlights the common international causes behind the global expansion of household and financial sector debt; the divergent national approaches to household credit that cause household and financial sector (...) indebtedness to vary from country to country; and the likely causes of these disparate approaches. National approaches to interest rate restrictions, property transfer taxation, high loan-to-value mortgages, mortgage interest taxation, and secondary markets for consumer debt can either encourage or mitigate household and financial sector borrowing. Whether a country encourages or mitigates such credit is determined by an idiosyncratic mix of institutional, political, and ideational factors. Especially important are the size of domestic pension funds, banks’ preferred business models, the political power of financial firms, and whether policymakers are more sensitive to the gains promised by a credit-fueled expansion or to the risks posed by an overleveraged collapse. (shrink)

In today's age of restrictionism, a growing number of countries are closing their gates of admission to most categories of would-be immigrants with one important exception. Governments increasingly seek to lure and attract “high value” migrants, especially those with access to large sums of capital. These individuals are offered golden visa programs that lead to fast-tracked naturalization in exchange for a hefty investment, in some cases without inhabiting or even setting foot in the passport-issuing country to which they now officially (...) belong. In the U.S. context, the contrast between the “Dreamers” and “Parachuters” helps to draw out this distinction between civic ties and credit lines as competing bases for membership acquisition. Drawing attention to these seldom-discussed citizenship-for-sale practices, this essay highlights their global surge and critically evaluates the legal, normative, and distributional quandaries they raise. I further argue that purchased membership goods cannot replicate or substitute the meaningful links to a political community that make citizenship valuable and worth upholding in the first place. (shrink)

The paper presents some ethical aspects of the credit rating agencies (CRAs) market in the light of the latest economic crisis of 2008. A historical background is also shown and how the CRA market emerged. It is emphasised how the functioning of CRAs contributed to the outbreak of the crisis and what were the consequences of over- or underestimated rating grades. The downgrading of a country has a significant influence on the deterioration of the economic condition. Simultaneously, it afflicts (...) the citizens, who have to pay for it e.g. with higher tax rates. It is believed that overestimated ratings lead to a speculative bubble, which ends up with the crisis. The paper indicates the problems connected with the way that CRAs operate and how they relate to business ethics. The fact that those institutions are profitprofile entities, which earn their income from clients, whose financial instruments are assessed, may bring about a conflict of interests. Moreover, it is outlined how the governmental policies of countries left CRAs without any particular control, which in the end was a significant factor, too. Finally, some potential solutions are discussed, and how the approach of CRA managers should change in order to prevent the market from similar situations in the future. (shrink)

: In the end, there can be no credits or purchasing power but that which comes from the production of wealth and services and the putting of these into the course and channels of exchange. It is, at the last, only by freedom of production and freedom of exchange in unrestricted markets that authentic credits […].

Irrational debt decisions at the individual level may harm collective welfare. For this reason, regulators are committed to encourage information-based behaviours in order to enhance likelihood of appropriate indebtedness. We analyse, with a diff-in-diff estimator, the Italian case offered by the Legislative Decree that reformed the consumer credit market adopting European Directive 2008/48/ec, and that reinforced the mandatory information acquisition, jointly asked to lenders and borrowers, before granting/receiving consumer credit. By using micro-data on 60.000 consumer credit borrowers, (...) in total, randomly sampled from the most relevant Italian Credit Bureau, our findings support that, in the medium term, the new consumer credit regulation has improved borrowers’ repayment ability, enhancing the quality of credit distribution. Nevertheless, a simplistic ‘better information-better behaviour’ relationship cannot be assured. This success is likely due to conjunct adaptation of behaviours, with shared responsibilities experienced on both the demand and offer side of the consumer credit marketplace. (shrink)

This Article argues that when credit suppliers market and advertise their credit products, they utilize and enhance consumers’ cognitive biases, particularly their optimism bias and illusion of control. We apply the concept of manipulation to this practice. The biased and manipulated debtors attribute unrealistically low probability to negative life events, such as job loss, illness, accident or divorce, and high probability to positive life events. As a result of the manipulation, the biased debtors are triggered to borrow more (...) than they would have borrowed otherwise. This additional borrowing may contribute to the default of these debtors and to their eventual bankruptcy. Empirical studies of the causes of bankruptcy show that before their default, bankrupts have often experienced negative life events that decrease income, increase expenses, or both. The bias and its manipulation justify legal intervention. The Article discusses various justifications for legal intervention and offers tentative and partial prescriptions for intervention. It analyzes the comparative advantages and shortcomings of ex ante intervention, in the form of regulation of credit marketing practices and credit contracts, of tax and insurance, and ex post intervention, at the bankruptcy stage. Its main contribution is in bringing together bodies of literature on cognitive biases, consumer decision making, lifecycle, social influence, advertising and marketing, behavioral law and economics, economic analysis of bankruptcy and socio-legal studies of bankruptcy. By combining these bodies of literature, the Article provides a new perspective on bankruptcy and credit and offers a promising framework for future work. (shrink)

In recent years, scholars in the social sciences and humanities have turned their attention to how the rise of digital technologies is reshaping political life in contemporary society. Here, we analyze this issue by distinguishing between two classification technologies typical of pre-digital and digital eras that differently constitute the relationship between individuals and groups. In class-based systems, characteristic of the pre-digital era, one’s status as an individual is gained through membership in a group in which salient social identities are shared (...) in common with other group members. In attribute-based systems, characteristic of the digital era, one’s status as an individual is determined by virtue of possession of a set of attributes that need not be shared with others. We argue that differences between these two types of classification technologies have important implications for how persons attach (or fail to attach) to groups, and therefore what kinds of political mobilization are possible. We illustrate this argument by examining contention over the use of gender as a variable in the pricing of risk in insurance and credit – two markets in which individuals directly encounter class-based and attribute-based systems of classification, respectively. (shrink)

This article concerns freedom and financial markets. First, I consider the republican case for liberalization, extending Robert Taylor’s economic model of republicanism to financial markets. This case adopts what I call a “philosopher-king” approach to political theory, arguing by reference an ideal or first-best set of policies or reforms. Then, I investigate the negative externalities of several decades of financial market liberalization, including the erosion of political accountability and the growing concentration of political and economic power in the (...) hands of those best suited to profit from the rise of finance. From this “political economy” perspective, the impact of liberalization is clear: we paid for greater access to credit with political and economic domination. In republican terms, we traded freedom for credit. My analysis, moreover, has implications for republican debates on freedom and the market. In second-best worlds, where reforms will almost certainly be incremental, shaping the balance of power in ways that impact future policy, judging reforms by reference to a vision of domination-free markets will often suggest policies that make individuals less free. The political economy approach is far more relevant to debates about which economic institutions further or hinder freedom as non-domination. (shrink)

This paper points to a lost and ignored strand of argument in the writings of liberalism's earliest defenders. These “classical” liberals recognized that market liberty was not always compatible with individual liberty. In particular, they argued that labor markets required intervention and regulation if workers were not to be wholly subjugated to the power of their employers. Functioning capitalist labor markets (along with functioning credit markets) are not “natural” outgrowths of exchange, but achievements hard won in (...) the battle against feudalism. Further, and crucially, the existence of such markets required closing off other market choices. Footnotesa I would like to thank the other contributors to this volume, and its editors, for their helpful comments on an earlier draft of this essay. (shrink)

In spite of its commercial importance and signs of clear concern in public policy arenas, trade credit has not been subjected to systematic, extended analysis in the business ethics literature, even where suppliers as a stakeholder group have been considered. This paper makes the case for serious consideration of the ethics of trade credit and explores the issues surrounding slow payment of debts. It discusses trade debt as a kind of promise, but—noting that not all promises are good (...) ones—goes on to develop an analysis of the ethics of trade credit grounded in an understanding of its fundamental purpose. Making a distinction between “operating” trade credit and “financial” trade credit, the paper provides an account of the maximum period for which it is appropriate for one company to delay payment to another from which it has purchased goods or services. The concern of commentators and policy makers that companies should not take too long to pay their debts is affirmed, but the understanding of what timely payment means is significantly finessed, with one conclusion being that, if debts have not already been settled according to acceptable standard terms of trade, cash should pass quickly back along the supply chain once the customer in the final product market has paid. The analysis has implications not only for companies that take credit but also for external parties that seek to rate companies or set regulations according to speed of payment—an approach that is shown to be misleadingly simplistic, albeit well intentioned. A corresponding important responsibility for suppliers, not to extend excessive credit, also follows from the analysis developed. Having provided a novel analysis of an important business problem, the paper then discusses some of the related practical issues and makes suggestions for further research. (shrink)

In many Western capitalist economies, private indebtedness is pervasive, but it has received little attention from political philosophers. Economic theory emphasizes the liberating potential of debt contracts, but its picture is based on assumptions that do not always hold, especially when there is a background of structural injustice. Private debt contracts are likely to miss their liberating potential if there is deception or lack of information, if there is insufficient access to (regular forms of) credit, or if credit (...) is overly expensive. Markets for private debt can be mechanisms of structural injustice: rather than playing a neutral role, they reinforce injustices, because the failures of debt to be liberating disproportionately hit individuals in disadvantaged positions. By individualizing what are in fact structural problems, private debt can contribute to stigmatization, social exclusion and oppression. What is at stake, from a perspective of structural justice, is not only the distribution of income, but also the distribution of risk. The problems of private debt markets therefore require political attention. In addition to fighting the structural injustices that form the background condititions of private debt, it is also worth addressing private debt markets themselves. (shrink)

The purpose of the study is to investigate the impact of stock market development on economic growth for nine developed European countries. In many countries, the stock market (SM), is considered. one of the crucial elements for promoting sustainable economic growth and development. By analysing data from nine developed European countries over 21 years, from 2000 to 2020, including Germany, the United Kingdom, France, Italy, Spain, the Netherlands, Switzerland, Turkey, and Poland, this study seeks to determine the effect of the (...) stock. market. on economic growth. The years 2021 and 2022 are not included due to the lack of data, mainly as a result of the pandemic period. The dataset, extracted from the World Bank database, is used to generate results by applying different econometric models such as OLS, OLS Robust, Fixed, and the Random Effect, which turned out to be more suitable in this study. According to research, macroeconomic factors such as stock. market development (SMD), and inflation (INF), have a significant positive impact while, domestic credit to the private sector (DC), has a negative significant impact on economic growth, in respective periods and countries. Therefore, new research on this topic could help better understand the stock market’s impact on economic growth, and new conclusions might greatly benefit developed European countries. (shrink)

This paper reports an attempt to develop a code of ethics for marketing educators at colleges and universities throughout the world. The paper describes the process of development and the outcome. The code of ethics details social responsibilities of marketing educators in relation to certain publics and actions. Social responsibilities related to certain publics include ethical prescriptions such as treating others with respect and dignity, upholding justice, providing information to others about matters that may significantly affect their well being, providing (...) access to needed and affordable resources, protecting the privacy of others, allowing the expression of a grievance and providing a mechanism for redress, providing fair credit, and ensuring safety. Social responsibilities related to certain actions include avoiding conflict of interest; conducting ourselves with the highest standards of intellectual honesty, professionalism, and objectivity; adhering to all policies of our academic institutions and challenging unjust or ineffective policies; mentoring our junior colleagues and students; being selfless in contributing to the marketing discipline and society at large, and defending the principles of academic freedom. (shrink)

This paper evaluates the economic assumptions of economic theory via an examination of the capitalist transformation of creditor–debtor relations in the 18th century. This transformation enabled masses of people to obtain credit without moral opprobrium or social subordination. Classical 18th century economics had the ethical concepts to appreciate these facts. Ironically, contemporary economic theory cannot. I trace this fault to its abstract representations of freedom, efficiency, and markets. The virtues of capitalism lie in the concrete social relations and (...) social meanings through which capital and commodities are exchanged. Contrary to laissez faire capitalism, the conditions for sustaining these concrete capitalist formations require limits on freedom of contract and the scope of private property rights. (shrink)

The contribution examines Karl Polanyi’s analysis of the fictitiousness of the commodity description of money, and its suitability as a reference for the analysis of the commodification of money within contemporary markets for credit and finance. Any critique of the commodification of money that draws on Polanyi’s influential argument should distinguish between two fundamentally different meanings of the occurrence of money as a commodity: the institutional system that makes some commodity money versus the commercial practice that turns money (...) into a commodity. Only a particular strand of Polanyi’s analysis provides a point of reference for a comprehensive critique of the commodification of money, rather than the monetization of some type of commodity. Departing from the aspects of Polanyi’s analysis that are specific to the political economy of the gold standard, the article draws on Polanyi’s material account of the essential contributions of public organization and social convention in the constitution of money. On these grounds, the commodification of money is potentially objectionable as the social disembedding of a common public institution. (shrink)

This article studies the impact of a credit expansion monetary policy on output and unemployment rate. In the introduction the history of the Phillips curve and its interpretation are presented to understand why New Consensus Macroeconomics argues that monetary policy is neutral in long-run i. e. has no effect on economic activity and natural unemployment rate. This New Consensus Macroeconomics supports the independence of the Central Bank, inflation-targeting and the strategy of constrained discretion model and influences strongly the monetary (...) policy of central bank today. The second section critics these three principles of the new consensus. It opposes free-banking to central banking system, and takes the defense of deflation to critic the inflation-targeting. Then the third section deals with long-run neutrality of monetary policy. In an Austrian Business Cycle perspective, there is neutrality of monetary only if the production structure must always return exactly to its level of before the boom. It is improbable, because the monetary policy via tax inflation and artificial variation of real interest rate has a long-run effects on the conditions of financing of entrepreneurial project and in fine all the market process dynamic. (shrink)

The rapid development of credit default swap market has changed the manner of credit risk management of banks to some extent and has had a new influence on the bank-enterprise credit model. In this study, the credit financing process of credit risk in small- and medium-sized enterprises gathers within a bank, which makes it difficult for SMEs to raise funds. On the basis of the perspective of CDS, we construct an incentive game model of bank-enterprise (...) credit behavior and analyze the influence mechanism of the credit financing of SMEs on CDS contract coupon rate, CDS payout ratio, bank-enterprise credit effort, and loan recovery rate when considering CDS. The result shows that the CDS contract leads to insufficient supervision after a bank loan, the moral hazard of the SMEs rises, and the probability of credit default events increases. In addition, in view of CDS, the SMEs can access more credit funds. (shrink)

For any market to work properly, certain key elements are necessary: competition, pricing, rules, clearly defined offers, and easy access to information. Without these components, there would be chaos. Orderly Fashion examines how order is maintained in the different interconnected consumer, producer, and credit markets of the global fashion industry. From retailers in Sweden and the United Kingdom to producers in India and Turkey, Patrik Aspers focuses on branded garment retailers--chains such as Gap, H&M, Old Navy, Topshop, and (...) Zara. Aspers investigates these retailers' interactions and competition in the consumer market for fashion garments, traces connections between producer and consumer markets, and demonstrates why market order is best understood through an analysis of its different forms of social construction. Emphasizing consumption rather than production, Aspers considers the larger retailers' roles as buyers in the production market of garments, and as potential objects of investment in financial markets. He shows how markets overlap and intertwine and he defines two types of markets--status markets and standard markets. In status markets, market order is related to the identities of the participating actors more than the quality of the goods, whereas in standard markets the opposite holds true. Looking at how identities, products, and values create the ordered economic markets of the global fashion business, Orderly Fashion has wide implications for all modern markets, regardless of industry. (shrink)

Since publication of Hetzel's The Monetary Policy of the Federal Reserve, the intellectual consensus that had characterized macroeconomics has disappeared. That consensus emphasized efficient markets, rational expectations and the efficacy of the price system in assuring macroeconomic stability. The 2008–9 recession not only destroyed the professional consensus about the kinds of models required to understand cyclical fluctuations but also revived the credit-cycle or asset-bubble explanations of recession that dominated thinking in the nineteenth century and the first half of (...) the twentieth century. These 'market-disorder' views emphasize excessive risk taking in financial markets and the need for government regulation. The present book argues for the alternative 'monetary-disorder' view of recessions. A review of cyclical instability over the last two centuries places the 2008–9 recession in the monetary-disorder tradition, which focuses on the monetary instability created by central banks rather than on a boom-bust cycle in financial markets. (shrink)

There is no doubt that a negative perception of financial risk and a lack of credit risk management adversely impact business growth and business owners’ wellbeing. Past studies suggest that most Nigerian traders have poor risk perceptions and manage risk poorly. A business coaching program within rational-emotive behavior therapy framework was evaluated in order to determine its effects on financial risk perception and credit risk management among Nigerian traders. This study used an open-label parallel randomized control design. This (...) 8-weeks coaching program had 60 traders in the REBT-based business coaching group and 59 traders in the control group. The mixed-model repeated measures ANOVA was utilized for analysis of the study data. Results show that relative to a control group, traders’ financial risk perception [F = 637.29, p < 0.001, ω2 = 0.69] and credit risk management [F = 795.51, p < 0.001, ω2 = 0.80] significantly improved after participating in REBT-based business coaching program. This study shows that REBT-based business coaching program is integral to increasing financial risk perception and credit risk management among Nigerian traders. This study contributes to the advancement of business coaching program within the rational-emotive behavior therapy framework for market traders, and its application in similar situations. The study considered the benefits of business coaching program for market traders from a developing country, which is a rarely studied group. It is highly recommended that professionals study the relationship between REBT-based business coaching and economic decision-making within various organizational contexts. (shrink)

We offer an ethical assessment of the market for data used to generate what are sometimes called “consumer scores” (i.e., numerical expressions that are used to describe or predict people’s dispositions and behavior), and we argue that the assessment has ethical implications on how the market for consumer scoring data should be regulated. To conduct the assessment, we employ two heuristics for evaluating markets. One is the “harm” criterion, which relates to whether the market produces serious harms, either for (...) participants in the market, for third parties, or for society as a whole. The other is the “agency” criterion, which relates to whether participants understand the nature and significance of the exchanges they are making, if they can be guaranteed fair representation, or if there is differential need for the market’s good. We argue that consumer scoring data should be subject to the same sort of regulation as the older FICO credit scores. Although the movement in the 1990s that was aimed at regulating the FICO scores was not aimed at restraining a market per se, we argue that the reforms were underwritten by concerns about the same sorts of problems as those outlined by our heuristics. Therefore, consumer data should be subject to the same sort of regulation. (shrink)

This study revisits the relation between corporate performance and corporate social responsibility in the context of a major shift in firms’ credit risk status. Relying on corporate credit rating as a performance indicator, we examine whether firms under the scrutiny of rating agencies trade-off CSR engagement for credit quality improvement. To explore whether firms adjust their CSR engagement after a focal rating change, we focus on the investment–speculative grade threshold because of its importance in accessing the public (...) debt market. We find that firms that lose the investment grade rating subsequently increase CSR engagement. We also uncover that improving CSR engagement helps firms restore their credit ratings ex post. Our findings support the view of CSR engagement as a valuable risk management strategy. (shrink)

In this Article I argue that the global credit crunch of 2007-2009 is the result of the multifaceted phenomenon of liquidity illusion. Fundamentally, the problem of liquidity illusion derives from the hollow conceptualization of "liquidity" in mainstream financial theory and practice. Represented most recently by the market completion theory, this paradigm has led to a widespread misunderstanding of the dynamics of the relationship between the process of financial innovation and the liquidity of the financial system. In order to unpack (...) the political economy of liquidity illusion from other factors in the leadup to the global credit crunch, this Article builds upon Hyman Minsky’s vision of financial innovation and crisis. Challenging mainstream views of the liquidity-enhancing process of financial innovation, I identify the three pillars of liquidity illusion in the recent 2002-2007 bout of securitization: a) the paradigm of self-regulating finance; b) the role of Ponzi finance; and c) the function of private authority, namely credit rating agencies. (shrink)

This study addresses the question whether corporate social responsibility (CSR) matters in Asian Emerging Markets. Based on CSR scores compiled by Credit Lyonnais Securities (Asia), we assess the CSR performance of major Asian firms over a period of 3 years, from 2001 to 2004. The results show that there is a positive and significant relation between CSR and market valuation among Asian firms. We further find that CSR is positively related to the market valuation of the subsequent year. (...) More importantly, Asian firms are rewarded by the market for improving their CSR practice. (shrink)