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)

Bringing together both established and emerging scholars from critical and cultural theory, literature, philosophy, and theology, this book examines the intersection of economics and religion.

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)

Calvin’s view on the legitimacy of interest has had a great impact on the economic development of Western society. Although Calvin took a fundamentally positive attitude to interest, he also proposed several restrictions on the charging of interest. In this article, we investigate the relevance of these restrictions to the current credit crisis. We find that each of them provides a relevant interpretation of what went wrong in the buildup of the credit crisis and gives directions (...) to improve policies of banks and governments as well. (shrink)

Calvin's view on the legitimacy of interest has had a great impact on the economic development of Western society. Although Calvin took a fundamentally positive attitude to interest, he also proposed several restrictions on the charging of interest. In this article, we investigate the relevance of these restrictions to the current credit crisis. We find that each of them provides a relevant interpretation of what went wrong in the buildup of the credit crisis and gives directions (...) to improve policies of banks and governments as well. (shrink)

Governments in Europe and the United States have recently acquired significant stakes in a number of financial institutions, raising fears that they will use their investments to pursue interventionist goals. The comparative analysis of sixteen major bailouts in Belgium, Germany, France, Ireland, Switzerland, the United Kingdom and the United States provides evidence to the contrary. Fiscal and political considerations have prompted governments to generally avoid common stock investments, limit direct managerial involvement and favor early exits. While this investment strategy may (...) prove detrimental to other stakeholders, it resembles the approach distressed asset investors would adopt under the circumstances. (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)

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)

As Social Economy financial institutions, credit unions have traditionally been considered less efficient than traditional banking entities. However, like banks and savings banks, they have to be as efficient and competitive as possible to survive in today’s business environment, especially at times of crisis. To date, there have been very few studies on their efficiency and practically none for the crisis period. Moreover, almost all the existing studies assess only financial efficiency, without considering their social function. This (...) study examines the levels of both financial and social efficiency in Spanish credit unions as well as their main determinants during the recent crisis. We apply the two-stage double bootstrap data envelopment analysis methodology based on panel data corresponding to all the credit unions active in Spain between 2008 and 2013. The empirical results indicate that financial and social efficiency achieved an acceptable level, although on average the former was slightly greater than the latter. We also find that both age and merger and acquisition activity were positively influential on the financial efficiency of credit unions but had a significant negative effect on their social efficiency. Moreover, the regional location of such entities and the financial crisis were also crucial determinants of both types of efficiency. Our findings are therefore useful for all the stakeholders of credit unions to know if these entities have been efficient according to a double bottom line accounting in the crisis period and hence to maintain successful social management that is compatible with satisfactory financial efficiency. (shrink)

As Social Economy financial institutions, credit unions have traditionally been considered less efficient than traditional banking entities. However, like banks and savings banks, they have to be as efficient and competitive as possible to survive in today’s business environment, especially at times of crisis. To date, there have been very few studies on their efficiency and practically none for the crisis period. Moreover, almost all the existing studies assess only financial efficiency, without considering their social function. This (...) study examines the levels of both financial and social efficiency in Spanish credit unions as well as their main determinants during the recent crisis. We apply the two-stage double bootstrap data envelopment analysis methodology based on panel data corresponding to all the credit unions active in Spain between 2008 and 2013. The empirical results indicate that financial and social efficiency achieved an acceptable level, although on average the former was slightly greater than the latter. We also find that both age and merger and acquisition activity were positively influential on the financial efficiency of credit unions but had a significant negative effect on their social efficiency. Moreover, the regional location of such entities and the financial crisis were also crucial determinants of both types of efficiency. Our findings are therefore useful for all the stakeholders of credit unions to know if these entities have been efficient according to a double bottom line accounting in the crisis period and hence to maintain successful social management that is compatible with satisfactory financial efficiency. (shrink)

We investigate whether the determinants of small and medium enterprises’ trade credits taken for purchasing fixed assets suffered substantial changes due to the global financial crisis. The geographical focus of this paper covers 18 former Eastern bloc countries. The data sample comprises opinions of the SMEs top managers relative to the trade credit financing. The two-step Heckman procedure is applied to study complexity of the trade credit determinants. We find that before the GFC the equity concentration and (...) inflation have negatively impacted the trade credit while foreign ownership and company’s longevity have had a positive effect. The GFC has changed this complex relationship. We evidence that, after the GFC, equity concentration and state subsidies have a positive effect. (shrink)

The global financial crisis, triggered by the subprime mortgage crisis in the USA, raises an important issue—namely, private production without the control of private property. The credit system has concentrated increasingly large social assets into the hands of financial institutions governed by a few people. This paper argues that the use of social capital for private production has played a key role in causing the subprime mortgage crisis. The credit and banking systems have abolished the (...) private nature of capital and have instead provided a basis for organizing and implementing social production. However, these systems have not “overcome the antithesis between the character of wealth as social and as private.” Therefore, it behooves us to explore what we can learn from the US financial crisis concerning how best to protect social interests, i.e., how to make the social capital produce for society. (shrink)

Marx claims that economic crisis is endemic to capitalism and will worsen as capitalism develops. The article situates Marx’s crisis theory within the discipline of political economy, explains its relationship to mainstream economics, charts economic crises that have happened since the 1840s, and explains Marx’s crisis theorem of the fall in the rate of profit. In conclusion, the 2008 economic crisis, and the notion of crisis in general, are speculatively considered. Special attention is given to (...) the affective desire to own a home, particularly as this is desire is developed by capitalism, in relation to the sub-prime mortgage credit crisis. (shrink)

ABSTRACT Though accused by critics of helping to cause the current financial crisis, credit‐default swaps are blameless. The accusation is understandable, however, given misunderstandings about how a credit‐default swap actually works. A careful look into its mechanism shows that it is not only simpler than thought, but that it is also vital to keeping the financial system strong by enabling financial institutions to better manage their risks. The risk taken on in a credit‐default swap (CDS) is (...) no different from the risk of making the underlying loan. CDSs allow risks to be spread more widely instead of being concentrated at vulnerable points, but they do not add to the total amount of risk. (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 [...].

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)

During the short span of a few months in 2008, 14 trillion dollars of highly rated bonds fell into junk status, surprising the global financial system and accelerating an economic decline. The result was the worst fracture of the US financial system since the Great Depression. Credit rating agencies (CRAs) in particular have come under intense scrutiny as a result of this latest disaster, both domestically and internationally, including many congressional inquiries and government investigations. Most of the public and (...) scholarly discussions about CRAs focus on reforming the financial system so that the crisis of the magnitude of the 2008 disaster will not happen again. An important overtone of industry criticisms includes a sense of ethical impropriety on the part of CRAs and ethical uncertainty about the institutional mechanisms that are currently in place. Rarely, however, are the ethics of the industry the explicit subject of analysis. In this article, we discuss the lessons from the policy debates and recent legislation to develop an account of the ethics of the CRA industry. (shrink)

Research into the causes of the 2008 financial crisis has drawn attention to a link between growing income inequality in the United States and high household indebtedness. Most accounts trace the U.S. idea of credit-as-welfare to the period of wage stagnation and welfare retrenchment that began in the early 1970s. Using France as a comparison case, I argue that the link between credit and welfare was not unique to the United States. Indeed, U.S. charitable lending institutions that (...) emerged at the beginning of the twentieth century were modeled in part on older French financial institutions. Three historical factors drove U.S. lenders and policymakers to push for expanded credit access for the working class. First, welfare reformers in the interwar period embraced private credit as an alternative to an expansive welfare state. Second, U.S. organized labor in the wake of World War II embraced credit access as a means to sustain industrial employment and finance strike actions. Third, commercial banks in the 1950s began offering revolving credit accounts as a means to attract new depositors at a time when banking regulation restricted the interest they could offer on deposits. (shrink)

The ethical practices of credit rating agencies, particularly following the 2008 financial crisis, have been subject to extensive analysis by economists, ethicists, and policymakers. We raise a novel issue facing CRAs that has to do with a problem concerning the transmission of epistemic status of ratings from CRAs to the beneficiaries of the ratings, and use it to provide a new challenge for regulators. Building on recent work in philosophy, we argue that since CRAs have different stakes than (...) the beneficiaries of the ratings in the ratings being accurate, what counts as knowledge concerning credit risk for a CRA may not count as knowledge for the beneficiary. Further, as it stands, many institutional investors are bound by law to make some of their investment decisions dependent on the ratings of officially recognized CRAs. We argue that the observation that the epistemic status of ratings does not transmit from CRAs to beneficiaries makes salient a new challenge for those who think current regulation regarding the CRAs is prudentially justified, namely, to show that the harm caused by acting on a rating that does not have epistemic status for beneficiaries is compensated by the benefit from them acting on a CRA rating that does have epistemic status for the CRA. Unlike most other commentators, therefore, we offer a defeasible reason to drop references to CRAs in prudential regulation of the financial industry. (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)

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)

Tocqueville suggested that "the people reign in the American political world like God over the universe." This intuition anticipates the crisis in the secularization paradigm that has brought theology back as a fundamental part of sociological and political analysis. It has become more difficult to believe that humanity's progress necessarily leads to atheism, or that it is possible to translate all that is good about religion into reasonable terms acceptable in principle by all, believers as well as nonbelievers. And (...) yet, the spread of Enlightenment values, of an independent public sphere, and of alternative "projects of modernity" continues unabated and is by no means the antithesis of the renewed vigor of religious beliefs. The essays in this book shed interdisciplinary and multicultural light on a hypothesis that helps to account for such an unexpected convergence of enlightenment and religion in our times: Religion has reentered the public sphere because it puts into question the relation between God and the concept of political sovereignty. In the first part, "Religion and Polity-Building," new perspectives are brought to bear on the tension-ridden connection between theophany and state-building from the perspective of world religions. Globalized, neo-liberal capitalism has been another crucial factor in loosening the bond between God and the state, as the essays in the second part, "The End of the Saeculum and Global Capitalism," show. The essays in the third part, "Questioning Sovereignty: Law and Justice," are dedicated to a critique of the premises of political theology, starting from the possibility of a prior, perhaps deeper relation between democracy and theocracy. The book concludes with three innovative essays dedicated to examining Tocqueville in order to think the "Religion of Democracy" beyond the idea of civil religion. (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)

“Hallo, hier ist Jeff ” / “Hello, this is Jeff ” — the typical words, distinctively articulated, the hint of a question mark, when Jeff called you, usually with a splendid idea for a “nice little symposium”, some conference, an invitation to give a lecture, to participate in a colloquium, to contribute an article. During the decades I have known him, never once has there been less than complete commitment to semiotics, an ongoing fascination that never slackened, paired with an (...) outlook, principally in regard to politics, going far beyond the confines of a scholarly field. It was an inclusive vision of the world that was typical of him, albeit a Weltanschauung guided by unequivocal conceptions and based on ample reflection. Even so, Jeff had no misgivings about assumptions divergent from his own although these were deeply held: rather, that plurality seemed to energize him even more, and the resulting expression of his views would, as a rule, get highly animated and intense. His engagement had to be strong: semiotics has hardly ever been a popular discipline (discounting a brief voguish celebrity in France,chiefly caused by a deficient and reductive reception of Barthes). Indeed semiotics was (and still is) widely considered to be a pretentious undesirability, maybe particularly in Jeff’s native Austria (where he organized all the same a very substantial number of subsidized colloquies). It was, I think, not least the tenacity resulting from an inauspicious situation which made Jeff such a fighter. No doubt, he had to be ─ his outstanding services to semiotics in general, that’s to say in large measure on the international scene, by no means a setting mastered easily, give ample proof. And prodigal too was the incredible amount of publications to his credit, pouring forth in rapid succession, throughout the years. The loss we had to suffer this year will be felt for a long time; at least there are the memories of unparalleled engagement and the testimony of a stupendous oeuvre. And for some among us there are even quite private remembrances to cherish: in my case, for instance, an extended visit of Jeff’s ─ not so long ago at our place in south-western France ─ together with his companion and collaborator Gloria Withalm. (shrink)

“Hallo, hier ist Jeff ” / “Hello, this is Jeff ” — the typical words, distinctively articulated, the hint of a question mark, when Jeff called you, usually with a splendid idea for a “nice little symposium”, some conference, an invitation to give a lecture, to participate in a colloquium, to contribute an article. During the decades I have known him, never once has there been less than complete commitment to semiotics, an ongoing fascination that never slackened, paired with an (...) outlook, principally in regard to politics, going far beyond the confines of a scholarly field. It was an inclusive vision of the world that was typical of him, albeit a Weltanschauung guided by unequivocal conceptions and based on ample reflection. Even so, Jeff had no misgivings about assumptions divergent from his own although these were deeply held: rather, that plurality seemed to energize him even more, and the resulting expression of his views would, as a rule, get highly animated and intense. His engagement had to be strong: semiotics has hardly ever been a popular discipline (discounting a brief voguish celebrity in France,chiefly caused by a deficient and reductive reception of Barthes). Indeed semiotics was (and still is) widely considered to be a pretentious undesirability, maybe particularly in Jeff’s native Austria (where he organized all the same a very substantial number of subsidized colloquies). It was, I think, not least the tenacity resulting from an inauspicious situation which made Jeff such a fighter. No doubt, he had to be ─ his outstanding services to semiotics in general, that’s to say in large measure on the international scene, by no means a setting mastered easily, give ample proof. And prodigal too was the incredible amount of publications to his credit, pouring forth in rapid succession, throughout the years. The loss we had to suffer this year will be felt for a long time; at least there are the memories of unparalleled engagement and the testimony of a stupendous oeuvre. And for some among us there are even quite private remembrances to cherish: in my case, for instance, an extended visit of Jeff’s ─ not so long ago at our place in south-western France ─ together with his companion and collaborator Gloria Withalm. (shrink)

This paper develops a political economic explanation of the 2007–9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage-markets. Until the early 1990s, racial minorities were systematically excluded from mortgage-finance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were offered to non-minority borrowers. This paper shows that the emergence (...) of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis – that is, when housing-loans became not just extortionary but speculative. (shrink)

This study investigates the interaction between suppliers and fraudulent customer firms from the perspective of reputation damage and reputation recovery. Specifically, reputation damage from the regulatory penalty for corporate fraud induces the trust crisis and suppliers respond to fraudulent firms by reducing the trade credit supply. To repair a damaged reputation and rebuild the trust, fraudulent firms raise the ratio of prepayment to purchase volume when purchasing from small suppliers and increase the proportion of purchase from large suppliers (...) in the next year. Channel analysis shows that the declining trust is one of potential mechanisms to reduce the trade credit. Furthermore, the negative effect is more pronounced for fraudulent firms with non-related party suppliers, higher supplier concentration, less analyst coverage, and for fraudulent firms located in regions with less-developed financial environment. Additionally, supplier sanctions have a spillover effect on non-fraudulent customer firms in the same industry. The conclusions are robust to a series of checks, including PSM–DiD, firm and year fixed effect, the alternative measure for trade credit financing, the industry-year fixed effect and the consideration of the monetary policy and financial crisis. (shrink)

Since ancient times the practices and ethics of bankers and banking in general have undergone a great deal of criticism. While lending is motivated by profit, and while households are not explicitly coerced into borrowing money, the justice of a system which exploits workers and at the same time encourages them to borrow money in order to maintain a certain standard of living can be viewed as sometimes unfair and perhaps immoral. The value of goods, according to St. Thomas Aquinas (...) and Karl Marx, should mostly reflect the value of labor embodied in them, and for that reason, labor should be compensated fully for its work. For these reasons, Aquinas and Marxian economists offer somewhat similar and at the same time different views on both the labor theory of value as well as on the morality of certain banking practices. If credit and the banking system also bring about crisis and the greater concentration and centralization of capital, then the morality of these outcomes also needs to be examined. (shrink)

Brenner's ‘The Economics of Global Turbulence’ has induced a flood of responses, the vast majority of them critical, especially on grounds of method and theory. Tony Smith1 is an exception in seeking to defend Brenner, mostly by pushing his arguments further and by attacking his critics, including ourselves. In part, Smith interprets Brenner and credits him with positions that he can either defend for himself or, as we suspect, reject. Our concern in this reply is not to address issues through (...) the prism of Brenner but to assess Smith's own contribution critically on its own terms and merits. (shrink)

ABSTRACTThe major credit rating agencies contributed substantially to the sub‐prime mortgage crisis by giving their highest rating to most of the collateralized debt obligations securities that were backed by these sub‐prime mortgages. Because the rating agencies are compensated by the issuers whose CDO bonds they rate, this relationship creates a prima facie conflict of interest, one that is compounded when the rating agency also consults for the issuers on designing the CDOs. While Congress and the Securities Exchange Commission (...) investigate possible wrongdoing, various reforms have been proposed. This article analyzes these conflicts of interest and the cognate corporate governance issues. It then categorizes and critiques several of the reform proposals—which range in severity from requiring more disclosure to the suspension of the rating agency's license. (shrink)

Numerous U.S. cities suffered immense fiscal strain following the subprime mortgage crisis and financial crash of 2007–8. Diminished revenues, tightened credit, and speculative financing that went bad in the aftermath fueled widespread fiscal distress on the local scale. Although the current moment resembles fiscal crises that crested in cities in the 1970s–90s, two factors distinguish the current period. First, municipal affairs have become thoroughly financialized—dominated by speculative securities and volatile debt arrangements—such that local crisis can no longer (...) be understood apart from financial market instability. Second, local fiscal politics have become increasingly removed from democratic oversight and control. This de-democratization hinders the capacity of political communities to reregulate markets and rebuild urban communities. An analytic model derived from the work of Hyman Minsky and Karl Polanyi emphasizes how cities become ensnared in a “financial instability” cycle and how communities seek to protect themselves by way of the “double movement.”. (shrink)

I argue that epistemic failings are a significant and underappreciated moral hazard in the financial services industry. I argue further that an analysis of these epistemic failings and their means of redress is best developed by identifying policies and procedures that are likely to facilitate good judgment. These policies and procedures are “best epistemic practices.” I explain how best epistemic practices support good reasoning, thereby facilitating accurate judgments about risk and reward. Failures to promote and adhere to best epistemic practices (...) contributed to the 2008 financial crisis. I identify and discuss some of the ways in which best epistemic practices were violated in the events that led to the crisis, with a focus on the role of the credit rating agencies. I go on to discuss some of the ways in which these failings have been redressed. I conclude by observing how proactive regulation for best epistemic practices might help us to anticipate and avoid future crises. (shrink)

This paper situates the subprime crisis in the context of the performance of the American economy over the last twenty-five years. The restructuring of the US economy is briefly reviewed, followed by an examination of some of the contradictions of the neoliberal model. Particular emphasis is placed on understanding the reasons behind stagnant investment, and how the US finance-led accumulation-régime has become dependent upon, and threatened by, credit-creation delinked from the financing of fixed-capital formation. I argue that while (...) the defeat of the remnants of the New-Deal/Civil-Rights liberal-democratic coalition has provided the political context for the bold re-assertion of the prerogatives of capitalist owners, the neoliberal model has not provided a path out of problems of stagnation and growing debt-dependency that presently plague the US economy. Further, I argue that evidence suggests that the post-1982 restoration of profitability that underpinned the relative improvement of US economic performance has peaked, and that compelling historical and theoretical reasons exist to expect that the profit-rate will decline in the coming decade. This will introduce additional stresses on the current debt-structure of the US economy, triggering a period of prolonged crisis and economic dislocation. The conclusion is that the US economy faces the spectre of a protracted crisis associated with the reassertion of the falling rate of profit. (shrink)

The financial crisis that currently besets Europe not only disturbs the life of many citizens, but also affects our economic, political and philosophical theories. Clearly, many of the contributing causes, such as the wide availability of cheap credit after the introduction of the euro, are contingent. Analyses that aim to move beyond such contingent factors tend to highlight the disruptive effects of the neoliberal conception of the market that has become increasingly dominant over the last few decades. Yet (...) while the financial sector has received most of the blame, and rightly so, few commentators seem willing to take into account the role played by representative democracy in its current form. Even if it is granted that actual democratic policies fall short of what they ought to achieve, contemporary representative democracy itself is seldom regarded as part of the tangle it was supposed to resolve. David Merill touches upon this issue when he notes, in the preceding issue of thisBulletin, that ‘the economic dilemmas faced today may be ultimately the consequences of state failure’. The state that has failed to regulate the markets is described as ‘weak’ and ‘subject to external blows, blind to its ends, merely one actor among many in the events of the day’ (Merill 2012: 28). Yet Merill does not seem to consider this weakness to be an inherent feature of the constellation of which contemporary democracy is a part.There are, of course, excellent reasons not to take this path. First, representative democracy has in many cases proved to be the best way of preventing small elites from acquiring political power, and many of the impressive social and political achievements of the twentieth century are the result of democratic processes. (shrink)

ABSTRACT Imagine, as most economists do, that financial-market participants understand the basic structure of the world: While they cannot predict the future with certainty, they are endowed with knowledge of the possible outcomes of their actions and the probability that each of those outcomes will occur. Given these assumptions, if bankers, regulators, investors, and rating agencies were rational, we may conclude that the financial crisis was caused by poor incentives: These actors must have knowingly jeopardized their institutions and the (...) global economy to pursue private gain. Alternatively, market participants, caught up in the mania of crowds, may have irrationally ignored risks of which they were aware and of which they knew the correct probability. Neither of these explanations for the financial crisis stands up to the evidence, since both explanations assume that the participants knew the U.S. housing market was about to crash. A fresh look at the data five years later suggests that they were ignorant of this fact, and that they acted rationally (or at least reasonably) in light of what they (thought that they) knew. This allows a more nuanced understanding of how financial institutions ended up in bedlam, why credit markets collapsed, and why they took so long to recover. (shrink)

This paper aims, first of all, at showing that there is a very close correspondence between the series of events of the subprime cycle and the typical process described by the Austrian business cycle theory. It then answers to some of the main criticisms directed against the Austrian explanation of this crisis. It shows, finally, how major aspects of this cycle – housing bubble, governmental policies of credit and housing, financial innovations – can be integrated to or deduced (...) from the Austrian explanatory framework. (shrink)

Executive summary In this discussion paper, it is shown that the current housing affordability crisis in Germany is a problem of intergenerational injustice since it affects young Germans disproportionately negatively. To address these injustices, the following policy measures are suggested. 1. Policies to assure affordable rents a. Rent controls : Well-designed rent controls help keep rentprice increases in re-lettings in check, while still allowing landlords to pass renovation costs on to their renters and to increase their rents by a (...) small percentage annually. This would especially benefit young individuals, since the young move more often than baby boomers and are therefore disproportionately negatively affected by price increases in re-lettings. b. Strengthening social housing : Local, state, and national governments must invest in the provision of social housing to provide below-market-priced housing for the most vulnerable households. This measure is especially important in large cities, where rents have risen steeply over the past decade, threatening to displace many poor households. 2. Measures to facilitate first-time homeownership for young Germans. Supporting young adults in becoming first-time homeowners is another important area in which public policy can help mitigate the negative effects of the housing crisis for young Germans. This can be achieved via: a. First-time home buyer programmes : First-time home buyer programmes support individuals who are buying their first home through grants or other financial stimuli, such as a first-time home buyer tax credit. Several countries, such as Australia or Canada, already have such programmes in place, helping young individuals to become homeowners. Such measures could also be adopted in Germany. b. Access to credit for first-time buyers : Young people often face credit constraints when buying their first home since they do not yet own a home they could use as collateral. Governmental programmes, such as the first-time homebuyers plan in Canada, can help young individuals to obtain resources for the down payment on a mortgage, thereby improving their chances to be able to obtain a mortgage at a reasonable interest rate. 3. Measures to increase housing supply. To address issues of housing affordability and intergenerational justice, public policy should aim to increase the housing stock. It should also provide for the needs of young generations, especially in urban areas. Concrete measures to achieve these goals include: a. Densification policies : Densification policies consist of relaxing zoning restrictions. This allows landowners to build more densely and taller, thereby increasing the overall housing supply. Relaxing zoning restrictions allows the housing supply to respond to an increased demand and can therefore prevent house prices from rising. Therefore, densification policies have become a widespread tool to address housing unaffordability and could be used more extensively in German cities. b. Using existing housing stock more efficiently : Another factor that hinders young people from finding adequate homes is that houses that could be occupied by a young family or multiple students are often occupied by an old couple or individual who continue living in the homes where they raised their children, even after the children have moved out. Online platforms, such as Tauschbörse, that connect young individuals currently living in a smaller property with older people currently living in a larger property can help in using the existing housing stock more efficiently. Since the current German housing crisis is a predominantly urban phenomenon, Germany’s large cities should be the primary focus of these policies. Yet, because of architectural and socio-economic differences between and within cities, there exists no one-sizefits-all solution. Nevertheless, the above measures can serve as a starting point for developing comprehensive measures to fight intergenerational injustice in the German housing market. (shrink)

This paper develops a political economic explanation of the 2007–9 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage-markets. Until the early 1990s, racial minorities were systematically excluded from mortgage-finance due to bank-redlining and discrimination. But, then, racial exclusion in credit-markets was transformed: racial minorities were increasingly given access to housing-credit under terms far more adverse than were offered to non-minority borrowers. This paper shows that the emergence (...) of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macro-economy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit-markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation-process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under-collateralised basis – that is, when housing-loans became not just extortionary but speculative. (shrink)

Organized big business and the government basically upheld the same opinions concerning this action: Belgium being a small open, exporting economy, it could only survive by maintaining stable monetary parities, by defending free trade, by pursuing internal deflation and balanced budgets.Nevertheless, these traditional methods were only one aspect of the state's economie activity Juring this period. Due to the severity of the crisis, major parts of the economic structure were on the verge of collapse.Consequently, the state was dragged in (...) a whole new series of interventions : financial aid systems, credit enlargements, stimulation of cartellization, enactment of new legal regulations, organisation of suppletive economie functions, etc. All these measures can be characterized as an « external » framework, intended to secure a safe working of the capitalist system. A second stage in state interventionism, directly influencing the internal mechanisms and modalities of investment, production and consumption, was not reached in Belgium before World War II. (shrink)

One of the leading explanations for Canadian banking stability through the global financial crisis of 2007–08 is the Concentration-Stability Hypothesis (CSH), according to which the oligopoly of Canadian finance stabilised the credit system by cushioning it with above-average profits. These provided a buffer against fragility and incentives against excessive risk-taking. In this article, I critically examine CSH and show that classical Marxian analysis more effectively illuminates Canadian banking stability. I demonstrate that robust corporate profitability and capital accumulation before (...) the crisis strengthened the balance sheets of the banks and supported them through those turbulent years. Thus, financial stability is linked explicitly to broader economic stability, and the latter is linked to the profitability of business enterprise. (shrink)

The 2008 ‘credit crisis’ brought to attention that business and finance operate in open-complex systems. In contrast, the period leading up to the crisis was dominated by narrower thinking developed from the idea that business was about economics and that management concerned agency. This paper revisits ideas first developed in the late 1990s that arose from the observation that business was confronting interacting ‘systems.’ The main systems were around (sustainable) development, the internationalization of business and a set (...) of social and cultural concerns resulting from globalization.The paper anticipated the collapse of parts of the economic system as a result of hyper-competition. It points to the growing significance of ‘identity’ and its potential to create a ‘clash of values.’ It concludes by suggesting that as we enter this ‘systems age’ our models and assumptions around the boundaries of companies and the idea of companies and stakeholders would be severely challenged. (shrink)

A financial crisis of 2008 showed a global meaning of ethical dimension of the credit institution because lack of financial subjects’ responsibility is regarded as one of the causes of the world breakdown. The author attempts to reconstruct the role of credit in the society and economy, especially an evolution of its ethical aspects is analysed. It is aimed to catch and understand the phenomenon of responsibility for the effects of this institution activity which proved dramatic more (...) and more often both for individuals and for the whole society. (shrink)