141 posts categorized "Sociological Perspectives"

Faith-Based Markets

posted by Adam Levitin

Paul Krugman has a column today about the blind, fundamentalist faith in efficient markets.  This is a phenomenon that Stephen Lubben and I have been discussing recently (did Krugman just preempt our paper idea?), as we've both encountered it in the financial regulatory policy debate: 

  • The Chapter 14 proposal that would resolve large financial institutions in bankruptcy takes it as a matter of faith that there would be sufficient private DIP financing available to resolve, say, JPMorgan Chase. I don't know how much would be needed, but it would be a multiple of the largest private DIP loans to date:  $10B for Energy Future Holding and $8B for Lyondell Chemical.  Where would the, perhaps $100B needed for a megabank come from?  Well, not from that megabank...  But don't worry, the market will provide.
  • Housing finance reform proposals that would either total privatize the housing market (the House Republican solution) or privatize 10% of the market (the Johnson-Crapo bill in the Senate).  We could have a completely private housing finance system.  But don't be surprised when home prices drop precipitously.  There just isn't enough private risk-capital willing to assume credit risk on housing to finance the whole market. It's not clear to me that there's enough private risk-capital willing to assume the credit risk on 10% of the market, and if there isn't it is going to result in at least a 50 basis point increase across the board, and much higher price increases for riskier borrower.  But don't worry about these details.  The market will provide. 

So here's the inconvenient paradox of market fundamentalism:  the idea that the free market can be directed. Either the market is free or it will follow direction, but it's not going to do both. Markets do what markets want.  

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Cui bono?

posted by Jason Kilborn

At a conference on consumer bankruptcy policy over the weekend in Athens, Greece (a place that knows all too well about consumer financial distress) and again today in class, I confronted a really nagging, fundamental problem of bankruptcy policy: For whose benefit do modern societies develop consumer bankruptcy laws, and do these systems actually deliver such benefits? In my view, the most convincing and common explanation for why existing systems offer debt relief to consumers is that relieving their suffering redounds to the greater benefit of society at large (see, e.g., section I.9, pp. 26-40, in the World Bank's Report). The problem is that I know of no empirical proof of this essential assertion. Indeed, to the contrary, I have seen well done empirical evaluations of the fresh start that suggest that, at least in the US bankruptcy system, many consumer debtors are not being reinvigorated and reintroduced into the productive, open-credit society.

I'm no empiricist, but it strikes me as potentially impossible to substantiate the premise of consumer bankruptcy policy empirically. It would be a monumental task to even formulate a research agenda for such a question. How would/could anyone ever prove that society benefits from relieving consumers of overburdening debts? Has anyone tried? Am I missing something I should be citing? Is anyone attempting to answer the question today? Any leads welcome.

Sousa on Bankruptcy Stigma

posted by Bob Lawless

If you are looking for trite and oversimplified assertions about bankruptcy stigma, then stay away from the latest issue of the American Bankruptcy Law Journal. In those pages, Professor Michael Sousa from the University of Denver has a wonderful paper reporting on his interviews with consumer bankruptcy debtors in Colorado. You can find a preprint version of the paper on SSRN. I had the pleasure of commenting on the paper at a conference earlier in the spring. Sousa is a new voice in the area of consumer debt who demonstrates with this paper the potential to make important contributions in the field.

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A Lawyer and Partner, and Also Bankrupt...for reasons that have nothing to do with being a non-equity partner...

posted by Adam Levitin

It's all the rage these days to beat up on law school as a bad investment and to moan about the economic travails of the legal profession.  There are some reasonable critiques that can be leveled at the shape of legal education and its costs and there are clearly important changes going on in the economics of the legal profession.  But in a NY Times column, James Stewart has tried to connect these important issues with the sad story of the bankruptcy of Gregory Owens, a former equity partner in Dewey LeBoeuf who is now a non-equity service partner at White & Case.

Owens has filed for bankruptcy and for Stewart, Owen's case is informative about "why law school applications are plunging and [why] there’s widespread malaise in many big law firms".  There’s just one problem.  Owen's case has no connection with either of these things.  Owens’ story is one of the expenses of divorce.  It is not a tale of legal education debt.  And it is only a story of the changes in the legal economy to the extent that Owens’ problem is that he’s earning only $375,000, not $3.75 million.  If Stewart weren’t so eager to get his licks in on the law school economy, he might see that there’s a very different story here.

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Detroit's Managerial Milestones

posted by Melissa Jacoby

PathA city in bankruptcy operates with considerably more freedom from judicial oversight than its private chapter 11 counterparts. People often say judges have just two principal points of involvement in a chapter 9: presiding over trials on eligibility and confirmation of the plan of adjustment. My earlier posts about Detroit have told a story that puts judges in a more active ongoing role, emblematic of the evolution of the federal judiciary over the second half of the Twentieth Century. Serious managerial judging (plus a team) empowers them to shape the speed and direction of municipal restructuring notwithstanding doctrinal and constitutional limits on their formal legal authority. Yesterday's evidentiary hearing in Detroit's bankruptcy is illustrative.

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Furlough Raises Moral Questions

posted by Nathalie Martin

Snaking up a mountain road toward our favorite trailhead yesterday, Stewart and I realized we’d face some moral dilemmas when we arrived. Assuming we could get into the National Forest at all, would we pay the fee, even though no one would fine us if we didn’t? Yes, we concluded. Fair is fair. Would we use the restrooms even though we knew they were not being cleaned?  As we left civilization, the answer to this one became increasingly “yes.” Would we throw our breakfast burrito wrappers in the bear-proof garbage cans? You bet. Those could attract bears even if left in the car.  Little furlough
 As this photo shows, the feds didn’t leave these questions up to chance. The fee box, the restrooms, and even the garbage cans were all sealed shut. These are obviously just silly questions, but some questions raised by the furloughs are not so silly.  Non-essential federal employees are not being paid, even those that are low paid and barely paid, but Congress is?  How is this possible? I have heard that there is a law against not paying them for a current session (wonder who came up with that one), and also that some congresspersons are giving their pay to charity (nice choice to have). In any case, this strikes me as seriously wrong. 

 

Jonathan Lipson on “Relational Reorganization”

posted by Jean Braucher

Prof. Jonathan Lipson of Temple University School of Law has an interesting post today on the idea of “Relational Reorganization.”   Find it over at the ContractsProf blog. He advocates more attention by scholars and lawyers working on debtor-creditor issues to the relational perspective of Stewart Macaulay, a leading contracts scholar in the law-in-action tradition.  Macaulay has studied, among other contracts phenomena, the ways that business do and don’t use contracts, including that they typically readjust relationships in light of business realities rather than formal contracts entitlements.

Lipson points out that when business debtors struggle to meet their many obligations, workouts are the norm, and formal contracts give way, no matter the care with which they were entered.  Even bankruptcy reorganization is typically mostly consensual.  What is different in the debtor-creditor world is that multiple relationships often have to be adjusted or abandoned in a reorganization process.  Lipson suggests that more attention to relational thinking could help us better understand various bankruptcy practices, particularly those used in close-knit groups of repeat players, including bankruptcy lawyers, claims traders, and professional distress investors.

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Buying Hope

posted by Melissa Jacoby

NumbersThose interested in The Stakes of Design back in April may appreciate Why We Keep Playing The Lottery. Thanks to The Morning News for alerting readers to the article, and thanks to author Rosecrans Baldwin for co-founding The Morning News, and . . . that's enough.

Numbers image courtesy of Shutterstock

Don't Fancy Games (For Your Kids' Financial Education)? How About The Theatre?

posted by Melissa Jacoby

MoneyTree"Make it fun and they will come," Lauren Willis discussed in the instructive post that evaluated the pros and cons of "The Gamification of Financial Education." Meanwhile, in London, a live show has been designed for children as young as five to teach them about the financial system. Interesting story on the show in The Guardian here. Tickets to "Bank On It" (running through the 14th of July) and other information here.   

Money tree image courtesy of Shutterstock 

The Stakes Of Design

posted by Melissa Jacoby

SlotThat 99% invisible is a vibrant architecture and design podcast might have been beside the point in Credit Slips land -- but for the fact that its current show (Episode 78) focuses on the design and technology of casino slot machines, and the particular profitability of penny slot machines. The short piece is built on the work of M.I.T. professor and anthropologist Natasha Dow Schüll. Lots on the consumer finance and cognitive behavioral side of things; don't expect any mention of bankrupt casinos.

Slot photo courtesy of Shutterstock.

Apologies for Bankruptcy

posted by Bob Lawless

My colleague, Jennifer Robbennolt, and I have posted a paper to SSRN exploring apologies in the bankruptcy context. Jennifer has done some of the leading studies on apologies in different legal contexts. Contrary to the instincts of many lawyers, apologies tend to produce better outcomes for defendants. For example, victims who hear an apology are less likely to feel they need to invoke legal process and are generally more amenable to settlements. Researchers have demonstrated these effects in a variety of legal settings such as personal injury, professional malpractice, and criminal law. We wondered whether we would see similar effects in bankruptcy.

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Financial Dermatologists

posted by Adam Levitin

The Yellow Pages that arrived at my door yesterday. This strange book is an object of great fascination to a generation that has grown up watching YouTube and relying on Wikipedia instead of World Book and Brittanica.  It was pure Kismet, but when I opened the volume, it was to Lawyers-Bankruptcy.  It turned out to be an enlightening experience. The Yellow Pages is perhaps the only place one can find concentrated advertising by bankruptcy (and other) lawyers. There might even be a good article in analyzing the advertisements. 

I was surprised that a good third of them didn't have the requisite "we are a debt relief agency" language, while some of the others choose to repurpose the BAPCPA escutcheon by calling themselves things like "federally recognized debt relief agencies".  Is that so different than the mortgage modification shops recently warned by the CFPB and FTC regarding misleading advertising for potential misrepresentations about government affiliation?

By far the best ad, however, was patterned on the Dr. Jonathan Zizmor, dermatologist, ad of NYC Subway fame, listing the various types of treatments available for consumers:  instead of wart and mole removals, there are second mortgage and lien removals.  Instead of chemical fruit peel treatments to reduce blemishes, consumers can get reductions in mortgage balances and taxes. Stop living with those embarassing acne garnishments and get on with your life. 

I always thought of bankruptcy lawyers as the legal equivalent of ER docs:  stop the hemorraging, stabilize the patient, move them to the ICU, and then on to the next one. But maybe we're really financial dermatologists. 

What I Love about Kiva.org

posted by Alan White

Kiva.org is the on-line microlending network that allows anyone to lend $25 or more to individual low-income borrowers around the world for micro-enterprise and housing.   Kiva is an entirely different way of thinking about credit and financial intermediation. While it may be small, it is an example of the real utopias described by Erik Olin Wright in his 2012 presidential address to the American Sociology Association.

Through kiva’s web site, anyone wishing to make a loan can browse the descriptions of borrower projects. For example, a woman in Central America has applied for $350 to buy bricks, cement, wire, sand, gravel and iron to build on to her house, and proposes to repay over 15 months. NGOs prepare the loan descriptions, disburse and collect loans and provide support services to borrowers. 

The interest paid by the borrower covers the costs of payment transfers, underwriting and supervision of the loans and the administration of the program.  Lenders receive no interest.  Those of us with some surplus wealth can put it to productive use without insisting on enriching ourselves as a reward for being (at least relatively) wealthy.   This is especially painless at the moment when interest rates for savers in the conventional retail banking sector are low, but it can also give us an opportunity to reflect on the deep capture of contemporary economic thinking by the idea that capital is entitled to, and must always, earn interest for being put to use.

With its capacity to connect thousands of individual lenders with thousands of individual borrowers, kiva also points one way to solving to the maturity mismatch that creates so much risk for conventional banks.  An individual lender/saver can browse a list of thousands of potential loans of varying maturities, and match his or her own cash needs with the borrower’s.  There are no 30-year mortgages on kiva (yet) but the possibility is there. 

Whether microlending and microfinance generally are a net welfare benefit foScreen shot 2012-12-08 at 10.22.10 AMr poor borrowers is a complex and controversial question, to which there are a variety of empirical and theoretical responses.  Other peer-to-peer lending and crowdfuding experiments without the social mission have raised a host of problems, including high default rates.  I can say, though, that I experience more happiness browsing my kiva.org portfolio (see picture) than any of my other account statements.

Race and the Housing Bubble

posted by Jean Braucher

While we wait to see if the second Obama administration will do anything new to help homeowners hit by the lingering mortgage crisis (finally replace Bush-holdover Ed DeMarco at FHFA to make way for debt relief?), there’s time to review a recent development that didn’t get the full attention it deserved.

I am referring to a lawsuit, Adkins v. Morgan Stanley, filed in the Southern District of New York in October by the ACLU. We don’t usually associate the ACLU with consumer protection in mortgage finance, and not surprisingly, it has brought a fresh perspective on the abuses that led to the housing bubble, highlighting race disparity in subprime originations.

Together with the National Consumer Law Center, the ACLU has brought a class action against Morgan Stanley charging that it financed a major subprime mortgage originator, dictated the nasty terms offered, and bought up a big portion of the resulting junk to feed its securitization maw.  The originator was New Century Mortgage Corp., which filed in bankruptcy in 2007.

The plaintiffs are African-American homeowners in Detroit who were sold New Century mortgages and who have ended up facing foreclosure. Also joining as a plaintiff is Michigan Legal Services, which has been swamped with mortgage cases in foreclosure ground zero, Detroit.

The legal theories used include the Fair Housing Act and the Equal Credit Opportunity Act, which are promising because these federal laws cover purchasing loans and also make disparate racial impact sufficient to make out a discrimination case. The 71-page complaint presents data that Detroit-area African-American customers of New Century were 70 percent more likely to end up in subprime loans than white borrowers with similar financial characteristics. The suit seeks a jury trial and disgorgement of ill-gotten gains, among other relief including appointment of a monitor (a good idea given the constancy of race discrimination in US housing finance practices).

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Disclosure Debates (. . . same old, same old)

posted by Amy Schmitz


We talk about disclosures, and the importance of reading our consumer contract terms before committing to any deal. However, does anyone really care about contracts? Let’s face it: Contracts have become largely meaningless until we run into problems and want to use the “terms” for ammunition to get a remedy. I am a Contracts Professor and often bypass e-contract terms when I am in a hurry or know that I could never get the terms changed. We are all lazy in reading contracts. I have confirmed this in my own research, which I wrote about in Pizza-Box Contracts: True Tales of Consumer Contracting Culture, published in the Wake Forest Law Review.  Disclosure debates are not new.

At the same time, texting and tweets as forms of disclosure have augmented shrouding and other tactics for effectivley hiding terms and contract modifications. The Federal Trade Commission hosted a one-day public workshop on Wednesday, May 30, 2012 to consider the need for new guidance concerning advertising and privacy disclosures in online and mobile environments. The workshop focused especially on challenges of making disclosures clear and conspicuous in social media and mobile marketing.

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Transactional Attorney Ethics

posted by Adam Levitin

The responses to my post on Scott Brown's activities as a real estate attorney make me think that I need to tee up a broader issue:  the role of attorneys in the financial crisis.  

The practice of law is a service industry. Lawyers don't decide the transactional ends. Instead, they help get their clients from point A to point B. It's a bit like being a cab driver:  the passenger picks the destination, the cabbie just provides the ride. And certainly we wouldn't think that a cabbie had any ethical issues if after dropping off a fare, the passenger proceeded to commit murder. Yet I don't think this means that deal lawyers are ethically immune from the transactional ends they facilitate. There is always the "known or should have known" issue. Lawyer can, and I would submit should, play a gatekeeping role. 

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Who Built It?

posted by Adam Levitin

We're seeing the back and forth between the Dems and the GOP about "who built it," whether the economy is a function of both public and private action (as artfully expressed by Elizabeth Warren and clumsily imitated by the President) or purely private Galtian will-to-create entrepreneurship. The only interesting thing about the argument is that there even is an argument. The facts are so overwhelming in support of the Elizabeth Warren version that it's astonishing that anyone would deny that government plays a huge and largely uncontroversial role (police, fire, roads, courts, currency) in making the economy function.  

So why are so many Americans so wedded to the private enterprise story? Why is this the heart of the GOP vision of what American is and should be? Why the insistence on clinging to the lone frontiersman version of America that has never really held true except on the margins?

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Zip Codes and Internet Searches Populate Database Mines

posted by Nathalie Martin

Twice now the New York Times has reported on a mysterious company in Arkansas, Acxiom, that has been collecting endless data on all of us but no one is entirely sure what they have or why they have it.  This is why neither NYT story makes perfect sense.  Something is wrong but we do not know enough about what they are doing to know what it is.  Consumers do not get to see their files according to the second article. I cannot write and get what they have on me, nor can you.

The collected data include our incomes, our family compositions, and certainly our geographic locations. The process for mining begins when a store clerk asks us at check-out for our zip codes, or perhaps when we search internet sites and input data there.  From there the sources somehow back into our e-mail and home addresses, our incomes, our buying preferences, our kids’ ages, our pets, and I am not sure what all else. 

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The Coasean Republic

posted by Adam Levitin

At times I've joked to my classes about the possibility of a Coasean Republic, a state I call "Coase-istan" (or perhaps Kosistan), in which the entire world operates via private ordering.  In Coase-istan, government does, well, nothing except put service provision out for private bids.  Mail would be delivered only by private express companies like Fed-Ex.  Prisons would be privately operated. Executions would be contracted out to the highest bidder. Food and drug safety would be policed solely by private litigation, which would, of course, all go to arbitration. Deposits would be privately insured, if at all. Taxes would be collected by tax farmers. The borders of the Coasean Republic would be protected by an army of mercenaries. Health care or transportation? Pay your own way. Want to buy a baby or enter a lifetime personal service contract? Go right ahead. 

The constitution of the Coasean Republic would, of course, enshrine self-evident truths such as revealed preferences and the absence of transaction costs or resource constraints.  Once one dismisses the rest of all possible worlds, one finds that this is the best of all possible worlds.   

Now, it turns out that the joke's on me. Sandy Springs, Georgia is well on its way to becoming the Coasean Republic. Well, let's hope that Tiebout competition works. 

Thank You to Bill Maurer and Stephen Rea

posted by Katie Porter

Last week, Credit Slips was fortunate to have the thoughtful insights of Bill Maurer and Stevie Rea on payments systems. Their posts reflect years of research in the United States and overseas on the social meaning of money, the potential and perils of mobile money, and the future of cash. We thank them for sharing their ideas with us.

As anthropologists working in a field shaped by legal rules--and lack thereof, Bill and Stevie offered insights on the ways in which cultural beliefs, social networks, and other non-legal forces are likely to shape the regulation of payments system in the future. If you missed their posts, I highly recommend you treat yourself to them. In their final post, they offer a challenge to Credit Slips readers that I hope we'll take up:

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Platform, Infrastructure, Utility?

posted by Bill Maurer & Stephen Rea

While we’ve been blogging, Stevie has begun his dissertation fieldwork in Korea. He emailed Bill the other day: “Yesterday I opened a bank account here in Seoul, and conducted the entire interaction in Korean. For some reason, I don't get an ATM card, which is really strange. But in all likelihood I had no idea what the teller was trying to say to me, so I might end up getting a card in the mail next week or something. As ‘technophiliac’ as this culture seems to be, cash is still king; outside of the large department stores and global restaurant chains, I don't see any POS terminals.”

There’s hype, there’s reality, and there’s possibility around all the cashlessness claims that follow on the heels of mobile and other digital payment platforms. We want to conclude our guest blogging with a gesture toward some of the possibilities of mobile money--and a challenge for the Credit Slips community.

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Cash as Social Infrastructure

posted by Bill Maurer & Stephen Rea

Sticker in San Francisco: "Of course it's cash-only, it's the Mission."

Overheard: "Oooh, yeah, no, we don't take cards. Because the coffee is, like, local?" (both items courtesy Lana Swartz)

The word “cash” derives from Latinate words referring to “a chest or box for storing money,” not the money itself. The term originally meant the practices of storing, and the objects used to store items of value – not just money -- as well as the act of going to those storage devices to receive money (to “cash” a bill of exchange,, meant to go to the specific box where the money was). Cash as we know it today is more than a store of value and a medium of exchange; it has symbolic, pragmatic and artistic functions. In the US, even before Durbin, small merchants placed an extra surcharge on credit or offered discounts if customers used cash. Research being conducted at the Institute for Money, Technology and Financial Inclusion (IMTFI) is bringing to light a host of social, ritual and religious uses of cash and coin beyond their economic functions. What's their relationship to, say, mobile money? For us, they are design challenges more than anything else (see, e.g., the Royal Canadian Mint's MintChip, or discussions among developers about Google Wallet). Building an infrastructure for digital payments, especially in places that have been cash-only, entails some connection to the existing social infrastructures of cash.

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Cash: Killing It, or Building Bridges to It?

posted by Bill Maurer & Stephen Rea

Much has been written about the inherent riskiness of cash. It is dangerous because it can be lost, stolen, eaten, destroyed, etc. It is dangerous because it is difficult to track, thereby helping to facilitate crime. Many a potboiler plot hinges on a cache of unmarked bills. Anyone remember Trixie Belden? “‘That governess of yours won’t argue when I tell her to leave a fat roll of unmarked bills under a stone at the Autoville entrance tonight. She won’t notify the police either.’ He reached up a grimy hand and touched one of Honey’s shoulder-length curls. ‘Not when I send her a lock of your pretty hair with the note, eh?’” (Julie Campbell, Trixie Belden and the Red Trailer Mystery, New York: Random House Children’s Books, 1950, p.180).

In the comments on our last post, we can clearly see two poles of the cash debate: cash is for criminals, but digital payment will welcome Big Brother into our wallets. Why so stark a choice? Last year, the Fletcher School held a conference titled, “Killing Cash.” It was framed explicitly in terms of the possibility that “mobile money”—mobile phone enabled payment and money transfer services, like Safaricom Kenya’s much vaunted M-PESA—heralds the possible end of cash and coin. Most of these services work on a prepaid model via the mobile telecommunications network – basically like prepaid airtime minutes for a top-up (not subscription) phone (nice article here on e-money in Central Africa by Andrew Zerzan; short piece here on mobile money regulation). I put cash into the system by visiting an agent. The agent sells me “e-money” in exchange for my cash, and gets a commission. I can now send e-money to another client on the network, who goes to another agent to cash it out (usually without a commission). Or, I leave the value in my mobile wallet, for a little while or for a long time. This is not an “end of cash” scenario, however. It’s an addition of e-money to what had been—for the poor, without access to financial services and digital financial platforms—a cash-only world.

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Toward Cashlessness?

posted by Bill Maurer & Stephen Rea

One of my students came across a humorous blog post from February, 2012. Titled, “What your payment method reveals about you,” the author listed a series of unlikely payment actions and a line on the presumed personal characteristics of the payer. The humor appeals to… well, us, anyway, and probably you, too.

Slinging your card down: You've definitely shoved a dog's face away from you because "move."
Slinging cash down: You've consumed alcohol that's involved whipped cream in the past week.
Using your Hello Kitty-themed card: You have many other credit cards.
Handing a bag of nickels and dimes, uncounted: You are nine.

Around the same time, the United States Agency for International Development launched an initiative to replace the use of cash in aid efforts with electronic forms of value transfer:

"If you care about reducing poverty, then you must also care about reducing the reliance on physical cash. We begin a movement to do just that.  USAID Administrator Rajiv Shah is announcing a broad set of reforms [in order to] reduce the development industry’s dependence on cash.  This includes integrating new language into USAID contracts and grants to encourage the use of electronic and mobile payments and launching new programs in 10 countries designed to catalyze the scale of innovative payments platforms."

The USAID “Better Than Cash” program was the culmination of at least a year’s discussion internally and with major donor agencies over the costs of cash for the poor--the heightened risk of theft associated with physical currency, the anonymity of cash, the difficulty in transporting and storing cash for those without access to formal financial institutions. Our own work has been enlisted in this effort, yet we are a bit more circumspect: although there are  very real problems associated with cash, there are also virtues. One of these virtues is that cash is publicly issued, not privately enclosed and tolled like most electronic forms of value transfer, and almost always accepted at par value. We’ll return to this topic as we examine some mobile phone-enabled money transfer and payment systems in the developing world, and regulatory responses to them, that might provide useful models. Over the course of the week, we will look closely at cash and how the debate over cashlessness—at times downright silly—is getting more serious, as at least some major actors shift from “the evils of cash” to “the benefits of an agnostic digital payment platform.” We think this is a consequential shift.

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Welcome to Guestbloggers Bill Maurer and Stephen Rea

posted by Katie Porter

Credit Slips welcomes Bill Maurer as a guest blogger this week. Bill is NOT a lawyer! Isn't that great? (We all need an occasional break from lawyers, even those of us who are lawyers.)

But Bill is one of my colleagues at the UC Irvine School of Law, where he has a joint appointment. He is a cultural anthropologist whose work focuses on law, property, and money and finance. Of great interest to Slips readers will be Bill's expertise on payment systems, and particularly on mobile money. He is the Director of the Institute for Money, Technology, and Financial Inclusion, a Gates Foundation-funded center for academic and policy research.

Bill's recent paper, Regulation as Retrospective Ethnography: Mobile Money and the Arts of Cash, examines how we are integrating mobile money products into our understanding of money, which traditionally has meant cash. He also has published work on BitCoin, Islamic banking, offshore financial structures, and other payments issues.

Bill will be joined by Stephen Rea, a graduate student in anthropology at UC Irvine. Stephen also is affiliated with the Institute for Money, Technology, and Financial Inclusion and has co-authored a forthcoming paper with Bill and another scholar on mobile money agents in the developing world.

We look forward to their insights.

Evaluating Mandatory Financial Education in Bankruptcy

posted by Katie Porter

In 2005, Congress amended bankruptcy law to require individual debtors with primarily consumer debts to complete an "instructional course on personal financial management" to be eligible to receive a discharge of their debts. Adding financial education as a bankruptcy requirement divided the bankruptcy community, even debtor advocates, judges, academics, and others who almost uniformly did not like the 2005 amendments. Part of the mixed sentiment about the financial education may be that it is hard to dislike something as innocuous-sounding as education (although Professor Lauren Willis makes a good case against it in this article). And there were certainly bigger fish to fry in opposing the 2005 laws. Still, many complained that this was one more example of creditors getting Congress to lard on duties for debtors, driving up the cost and work of obtaining bankruptcy relief and setting up debtors to have their cases dismissed if they tripped up by failing to complete the educational course.

Dr. Deborah Thorne and I have a new study that looks at how debtors themselves feel about the mandatory financial education course. It is a chapter in this book, Consumer Knowledge and Financial Decisions (ed. Douglas Lamdin, Springer, 2012) and available to read here. In the 2007 Consumer Bankruptcy Project, we asked debtors whether they believed that the information from the financial education class 1)would what they learned in the financial education class have helped them avoid bankruptcy originally, and 2) would help them avoid financial trouble in the future. While only 33% thought a financial instruction course similar to the one required of bankruptcy debtors could have helped them avoid filing, 72% thought it would help them avoid future financial trouble. As we report in detail in the chapter, some demographic groups were much more positive about the value of financial education than others.

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Littwin on Bankruptcy Without a Lawyer

posted by Bob Lawless

A few weeks ago, Katie Porter noted the release of the new book, Broke: How Debt Bankrupts the Middle Class. We are trying to feature posts from the authors of Broke about their contributions. Today's post comes from Professor Angela Littwin of the University of Texas School of Law and a founding member of Credit Slips:

After a long absence, I am temporarily back on Credit Slips, blogging about my contribution to Broke, the new book edited by Credit Slips’ own Katie Porter. My chapter is about consumers who file for bankruptcy without a lawyer (known as filing “pro se”). The chapter is entitled The Do-it-Yourself Mirage: Complexity in the Bankruptcy System. which should give you a pretty good idea of my take on the matter. Using data from the 2007 Consumer Bankruptcy Project, I found that pro se filers were significantly more likely to have their cases dismissed than their represented counterparts. My most interesting result deals with education. My analysis suggests that consumers with more education were significantly more likely than others to try filing for bankruptcy on their own, but that their education didn’t appear to help them navigate the process. Pro se debtors with college degrees fared no better than those who had never set foot inside a college classroom. I argue that bankruptcy has become so complex that even the most potentially sophisticated consumers are unable to file correctly.

This bad news, however, is not the entire story.

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Robosigning 2.0: Coming to a Foreclosure Review Near You

posted by Adam Levitin

Last October, I wrote a post entitled "Robosigning 2.0" that discussed some job ads for outsourced OCC foreclosure reviews. I predicted based on the job ad qualifications that the foreclosure reviews would be nothing other than a whitewash. The OCC doesn't want anyone digging too deeply into the solvency of the major banks or into the mess they've made of the mortgage paperwork system. Well, now there's evidence that this is exactly what's going on. The interview with this whistleblower is well worth reading. Put this one in the suspension of belief category:

Supervisors told his entire group that “Wells Fargo had submitted over 10,000 files to Promentory. Only 4 were found to be in question, and upon final review by Wells, no harm was found.” So, 10,000 homeowners submitted their complaints and all 10,000 were deemed to be models of perfection. 

It will be interesting to see the final figures on the reviews...if the OCC releases them. (Maybe I should brush up on my FOIA skills....) I really hope that mainstream news organizations pick up on this the way 60 Minutes did on DocX. I would say something about how we should be calling for the Comptroller's resignation, but who am I kidding. The story in consumer finance politics is that when it is banks vs. debtors, the debtors lose. That was the outcome in 2005. That was the outcome with cramdown. And that's the outcome with robosigning. There's no Association of American Debtors working the Hill. Consumers only win when the issue affects the middle class, not those falling out of it. Witness the CARD Act and the CFPB. And even those took a financial crisis of epic proportions. I worry where we'll be in five years once the memory of the crisis has faded and "it was overregulation's fault" revisionism has become respectible coventional wisdom for half of the polity. Sigh.  

It's Not Just the Economy Stupid!

posted by Philomila Tsoukala

“Greeks are protesting new austerity measures” is a common headline these days. It definitely captures some of what protesting Greeks are doing, but certainly leaves a whole lot out of the picture. Many Greeks are protesting not only the deterioration of their standard of living, but equally importantly, what they experience as a political disenfranchisement that has been orchestrated by the government, with the collaboration of the European heads of state. The situation in Greece is going to get much worse not only because of the economy, but also because of the repressive politics that are threatening to ignite Greek society.

To understand the Greek political cauldron you need to put yourself in the shoes of the average salaried Greek and what she has experienced these past two years. Picture this:

Continue reading "It's Not Just the Economy Stupid!" »

Greek Family and Welfare Provision

posted by Philomila Tsoukala

I have argued previously (here) that the EU/IMF/ECB insistence on “flexibilizing” labor law in Greece overlooked the basic structure of the Greek private market, which consists overwhelmingly of small, family owned and operated businesses, with ultra –flexible wage arrangements (a wife’s labor, especially, is often unremunerated). Add de facto non-enforcement of labor law even in the tiny segment it applied to and the massive informal sector and you end up with one of the most flexible markets, labor cost-wise, in Europe. Moreover, despite the infamous Greek welfare “drones” in the media, Greece does not have a welfare regime comparable to the rest of Europe. In fact, much like in the US, the Greek family internalizes most of the cost of basic services such as education, healthcare, housing. State employment and pensions have for a long time played the role of a substitute for the lack of such a welfare regime, for those of course who could access these jobs, usually on the basis of clientelist relations. The basic structure of state employment included jobs distributed widely among the client base of the governing party, with wages too low as remuneration and too high as welfare, along with privileged wages and perks for a narrow elite group within the public sector. Average wage and pension levels remained well below European levels before the crisis, while consumer prices had skyrocketed and remain among the highest in Europe even today.

All this may help clarify the compounded impact of the austerity measures on the average Greek. Dramatic wage cuts in both the public and the private sector, along with a largely successful program of taxation mainly targeting the salaried and small businesses transformed private sector workers and the average public sector worker into a newly struggling lower middle class or the newly poor-depending where they started from. The tax campaign also led to the closure of tens of thousands of businesses, while consumer prices remained steadily high. During all this, the family has been providing basic welfare except with less capacity to absorb the cost as unemployment skyrockets and the wages of those who have jobs are slashed. According to a friend, the new trend in one small city in northern Greece is for families to take in elderly relations, aunts, uncles, in return for their pension. People in their mid thirties, who had barely made it out of the parental household before the crisis are now moving back in. In Athens, which has been hit the worst, new forms of solidarity are being invented everyday (such as the “social kitchen” advertised here), but redistribution within the family still remains the main shock absorber. Overall capacity for shock absorption, however, may be busting at the seams as can be seen from Sunday’s events.

Kudos to Jean Braucher and Bob Lawless!

posted by Adam Levitin

A new study by Credit Slips own Jean Braucher and Bob Lawless (with Dov Cohen) on race and bankruptcy filings received very prominent and well-deserved page A1 coverage in the New York Times.  It's a fabulous study, and it's wonderful to see it getting such great media attention. 

American Capitalism: Profit, But Fairly

posted by Adam Levitin

Adam Davidson wrote up an interesting apologia for Wall Street in the NY Times last week, which I think is ultimately a call for better regulation, rather than bank-hating.  I missed the piece originally, but Yves Smith found it and has nothing good to say about it. I think Yves is a little too harsh on Davidson. I've got issues with parts of the piece, but on different grounds, namely that it efuses to engage on the real issue. The problem isn't financial intermediation.  That's a perfectly fine thing that plays a useful role in society.  

Instead, the problem is when financial intermediaries do not treat the intermediating parties (meaning consumer and investors) fairly. The history of US financial services is nothing short of a history of scandals involving financial institutions variously ripping off investors and consumers. I'm not just talking about those scandals we remember, like Milken or Madoff or the recent slew or even the second tier ones like the Salad Oil scam or all of 1920s mortgage bonds. The history of US financial services is largely a history of unregulated innovation resulting in abuse and then follow-up regulatory reform. Lather, rinse, wash, repeat. 

Davidson argues that the reason to "hate the banks" is that 

Wall Street firms enforce the cold rules of capitalism: hostile takeovers, foreclosures, fee increases, defaults. But those rules clearly do not apply to the largest banks themselves. 

Davidson misses the mark here a bit. It's not just that the banks get bailed out, meaning that the rules of market discipline don't apply to them. It's that the banks frequently break the rules when applied to others.  It's fine to do foreclosures or hostile takeovers or sell consumers speculative securities. But it's not ok to foreclose without following the law or to profit on insider knowledge on hostile takeovers or or to sell investors "safe" assets when you know they are junk.

The fundamental rule of American capitalism is "profit, but fairly." Whatever one thinks is "fair", I don't think there should be much disagreement that Wall Street too often disregards the second part of this dictum to focus on the first. But take away the "but fairly" and society quickly becomes a Gilded Age baronial kleptocracy, a post-Soviet (or pre-Soviet) Russia. If we want capitalism to work--meaning that there is social stability, pace OWS--market players must play by the rules. This is where the debate needs to be focused:  ensuring that our financial intermediaries play by the rules. 

Continue reading "American Capitalism: Profit, But Fairly" »

BROKE: A New Book on Consumer Debt and Bankruptcy

posted by Katie Porter

Just in time for New Year's resolutions on 1) reading more, 2) paring back your own debt, and 3) learning more about consumer bankruptcy to help you do your job (if you are a lawyer, judge, or academic, media, etc), the book, Broke: How Debt Bankrupts the Middle Class was released from Stanford University Press.

BrokeThe book makes extensive use of the 2007 Consumer Bankruptcy Project data, providing statistics, analysis, and commentary on consumer bankruptcy and debt topics. I edited the volume, and chapter contributors are many Credit Slips regulars or guest bloggers--Jacob Hacker, Bob Lawless, Kevin Leicht, Angela Littwin, Deborah Thorne, and Elizabeth Warren--along with other top scholars.

In the next few weeks, the chapter authors will blog here at Credit Slips about the research featured in the book, but to whet your appetite, I've included a table of contents for the book after the break. The book is accessible to lay readers but its scholarly focus provides plenty of data to educate and surprise even bankruptcy experts. Working on the book, I certainly learned a great deal about timely and important topics such as how pro se debtors (those without attorneys) fare in bankruptcy, where families go after they lose their homes to foreclosure, how bankruptcy affects couple's marriages, and the ways that bankrupt households differ in their financial straits from other households of concern such as those with low assets or late payments on debt. Of course I'm biased but I think the book provides the most comprehensive overview of the consumer bankruptcy system since the enactment of the 2005 bankruptcy amendments.

Continue reading "BROKE: A New Book on Consumer Debt and Bankruptcy" »

The Value(s) of Foreclosure Law Reform?

posted by Melissa Jacoby

As Alan White reported recently, the Uniform Law Commission in the U.S. has named a committee to consider the need for and feasibility of proposing a uniform foreclosure act and to report back to the ULC by early 2012. A letter from the ULC president includes a list of questions that the committee is charged to consider. But what principles will guide their analysis of these questions?

Continue reading "The Value(s) of Foreclosure Law Reform?" »

Lies and Denial: the 2012 GOP Strategy

posted by Adam Levitin

The last 24 hours have witnessed some remarkable historical revisionism on financial regulation coming out of the GOP.

First, we had one of the most bizarre and simply untrue attack ads I've ever seen, courtesy of Karl Rove's Crossroads GPS outfit. The ad calumnies Elizabeth Warren, claiming that first she was responsible for the TARP bailout and then set out to butter up bankers. Is this man on drugs? Rove seems to be confusing Elizabeth Warren with George W. Bush. 

Let's set the record straight.  Elizabeth Warren involvement with TARP was as chair of the Congressional Oversight Panel.  That was a body created by Congress to monitor and report on the effectiveness of TARP bailout.  The Oversight Panel did not create the bailout.  Congress did at the urging of the Bush Administration. The Oversight Panel had absolutely no authority to direct the use of the bailout. Its sole authority was to act as a watchdog.

And what a watchdog it was! It was Elizabeth Warren's trenchant criticism of the bailout that catapulted her to the national stage. The reason she started being invited to appear on the Daily Show and the like was because there was no better and more articulate critic of the bailout than Elizabeth Warren. The Oversight Panel could easily have been a sleepy, impotent backwater. Elizabeth Warren turned it into a ferocious bully pulpit for the interests of middle class Americans who were confused and angry over what was happening to their country. To blame Elizabeth Warren for the bailout is like calling Larry Bird the greatest New York Knick ever. It's so ridiculous that it's insulting. (And fighting words in Boston.) 

Then there's a hooter of a claim that Elizabeth Warren was courting bankers. Let's put that in some context to show how silly the charge is.  Elizabeth Warren left the Oversight Panel to help push for the creation of the Consumer Financial Protection Bureau, and for a long time it was thought that she would be nominated as the Bureau's Director. One reason she wasn't nominated was because the banks took an "over our dead [but now rescusitated via bailouts thank you very much] bodies" approach to Warren, claiming that she was "anti-bank."

Now, some might think that's a compliment, but Warren tried to show that she's not anti-bank. She just wants fair, transparent markets.  (Apparently, that's a problem for banks.  Heck, apparently, if you want market to be fair, and transparent and work as they are supposed to that makes one anti-bank, a socialist, a communist, or worse.  Capitalism, it turns out has nothing to do with markets.) To show that she wasn't anti-bank, Warren took great pains to reach out to banks and to show them that she's open-minded and willing to listen to their concerns, especially the concerns of small community banks and credit unions.  So now Elizabeth Warren is being damned for having been gracious and fair and open-minded. 

For more commentary on this lunacy, see here and here

Continue reading "Lies and Denial: the 2012 GOP Strategy" »

Occupy Wall Street, "Fringe Banking" and Public Options

posted by Adam Levitin

I happened to walk by Zuccoti Park in Manhattan yesterday, where the Occupy Wall Street protest is centered. I picked up a few pieces of protester literature. I can't say that I was in any way comprehensive in my collection. Some of the literature was just nuts, e.g., a flier blathering about admiralty law usurping the common law and the Trading with the Enemies Act. This flier could just as easily have been found at a Tea Party gathering. It gave new meaning to the term "fringe banking." 

But I also picked up a thoughtful and intelligent, for example a flier about public banking and the Bank of North Dakota (the only state-owned bank in the United States).  Hmmm.  That sounds like a public option for banking. If the financial system is broken, maybe it needs some better competition. It's not such a crazy idea. We actually already do that quite a bit in the mortgage market-FHA, VA, RHS, Ginnie Mae, and historically the FHLBs, HOLC and Fannie Mae (Susan Wachter and I have a forthcoming book chapter on this, to be posted to SSRN soon). We've even done it in straight banking--most people forget that we used to have a U.S. Post Office Bank. We have an FDIC that used to compete with private bank insurance funds (see the opening chapters of Kathleen Day's S&L Hell for a description of the private Maryland S&L insurance fund that failed). And we have federal (public) currency that used to compete with and has now supplanted private bank notes.  My point here is not to endorse public options or not, but merely to note that historically they were a response to failed private markets and should be part of the policy discussion. 

Are Corporations People Too?

posted by Adam Levitin

The "corporations are people, my friend" line was quite the momement. But as bad as it sounded, Mitt had a theoretical point. People (as well as other corporations) own corporations and people work for corporations.  The problem isn't that there aren't people at the end of the line behind corporations. The problem is that it's a minority of (primarily wealthier)people.  

According to the Federal Reserve's 2007 Survey of Consumer Finances, only 17.9% of families held stocks, 11.4% hold mutual funds, and 52.6% hold retirement accounts that likely hold a lot of stocks and mutual fund assets.   

I haven't been able to find data on the percentage of people employed by corporations, but it's assuredly large. That said, it's hard to imagine that corporate tax breaks would generally result in higher salaries for most employees rather than higher dividends for shareholders. The competition to attract capital is likely fiercer than the competition to attract labor (and certainly for semi-skilled or unskilled labor), which would mean that corporate tax breaks would benefit shareholders (a minority of people) and highly skilled labor (again a minority that probably doesn't need a lot of help).  So maybe a more accurate phrase for Mitt is "corporations are wealthy people, my friend". 

Bankruptcy Politics and State Bankruptcy

posted by Adam Levitin

I have a new paper out, Bankrupt Politics and the Politics of Bankruptcy, that examines state bankruptcy proposals and then uses them as a jumping-off point for sketching out a political theory of bankruptcy as a "creditor's armistice," an unstable political bargain, rather than an economic bargain ala Jackson & Baird's "creditor's bargain."  

The paper argues that bankruptcy is unlikely to do much good for the states because states' fiscal woes are akin to business model problems, rather than simple overleverage, and bankruptcy cannot fix business models.  States' business model--US fiscal federalism--is an inherently procyclical business model that is exacerbated by a moral hazard problem in state politics. Bankruptcy can no more fix this bad business model than it can make a buggy whip manufacturer (or a brick-and-mortar bookstore or video store) a viable operation.  

The intensely and patently political nature of the issues raised by state bankruptcy show a major set of deficiencies in contractarian theories of bankruptcy law, which have been developed primarily in the business bankruptcy context.  While others (such as our former co-blogger Elizabeth Warren) have criticized the creditors' bargain for failing to account for all of the stakeholders in bankruptcies, I argue that the inclusion or exclusion of various interests in bankruptcy is itself an essential part of a dynamic system of competing rent-seeking interests.

I don't attempt a formal exposition of an alternative political theory of bankruptcy in this paper--that's for another day--instead, I use this paper to lay out the idea and start linking the sovereign debt, subnational debt, business debt, and consumer debt literatures into a "unified theory" (yeah, I'm going to aim big, why not?) of debt restructuring (as in bankruptcy with a small "b").  The abstract is below the break:

Continue reading "Bankruptcy Politics and State Bankruptcy" »

Prisoners: When it Comes to Debtor-Creditor Issues, They’re Just Like Us

posted by Nathalie Martin

Once or twice a year, students from the University of New Mexico School of Law Clinic visit a women’s prison to provide brief legal services to those incarcerated there. We always assumed most of  inmates’ questions dealt with family law, so my group, the Business and Tax Clinic (the “B & T Clinic”), never went. This year, our Qualified Tax Expert, Professor Pamelya Herndon wanted to attend, and three of our students joined her. Professor Herndon suspected that at least a few of the women would have tax or consumer issues that we might be able to assist with. When our posse got to the prison, they were amazed by the demand for our services. Our mini-group was at least as busy as the groups answering questions about guardianships, divorces and parenting plans. Sixteen of the 64 women that were served that day had questions about taxes and debt. 

Continue reading "Prisoners: When it Comes to Debtor-Creditor Issues, They’re Just Like Us" »

Insurance Redlining and Transparency

posted by Daniel Schwarcz

Insurance nerds like to point out that insurance coverage is a pre-requisite to a wide range of activities, from starting a business to practicing medicine to driving a car.  In this sense, insurers often serve as gatekeepers to fundamental social privileges.  Nowhere is this more starkly illustrated than in the residential real estate context.  As one court succinctly put it: “No insurance, no loan; no loan, no house; lack of insurance thus makes housing unavailable.”  

Given the centrality of both credit and insurance to home ownership, one might expect that the rules in these two domains would similarly respond to the risk of redlining, which is the practice of denying or charging more for services in residential areas with large minority populations.  But as with coverage terms and claim handling, quite the opposite is true: whereas bank regulation has embraced transparency, insurance regulation has actively rejected it.  

Continue reading "Insurance Redlining and Transparency" »

Democratizing the Money Issue

posted by Adam Levitin

Robert Kuttner has a fantastic piece on creditor-debtor conflicts in several contexts (sovereign, consumer, current, historical). For Kuttner it alls points to a need to "democratize the money issue," by which he means returning the money issue--creditors' interests versus debtors' and whether credit would be cheap or dear--to the forefront of national politics. 

Continue reading "Democratizing the Money Issue" »

Dodd-Frank Gotterdämerung: The Durbin Amendment Rollback

posted by Adam Levitin

As early as this Tuesday we might find out who runs this country.  Is it Wall Street and the financial economy or the real economy of consumer citizens and retailers?  We will know the answer to this question based on what happens when the Senate votes on a bill to unwind a Dodd-Frank Act provision that would prevent banks from charging anticompetitive debit card swipe fees.

This provision, known as the Durbin Amendment is a bellwether for the state of political power and thus financial regulatory reform in the United States. Banks are working furiously to roll back the Durbin Amendment, and their success or failure at doing so is a measure of the political power of financial institutions. If the banks win, it will not just be the traditional story of the banks' routing the consumer groups. If the banks win, it will show that the financial services sector is more powerful than the largest retailers in the US.  (Heck, the US Chamber of Commerce is on the banks side on this, which might say something about the Chamber's funding. It's certainly not from all the small businesses over which they weep crocodile tears.) 

Continue reading "Dodd-Frank Gotterdämerung: The Durbin Amendment Rollback" »

The Anti-Consumer Agenda

posted by Adam Levitin

I often find myself annoyed by left-wing (and occassionally right-wing) anti-business screeds that decry corporations, big business, etc.  I don't find anything inherently troubling about corporate form or business size, and I have no problem with profit-motivated actors (individual or corporate), so long as they play fair. Mindless attacks on the business community have the unfortunate effect of undermining perceived validity of more targeted, thoughtful concerns through a guilt-by-association phenomenon. 

But business and consumer interests often diverge. Now, it should hardly be controversial that there is an unequal playing field between businesses and consumers. Generally, businesses know more about their products than consumers and have more bargaining power than consumers. (Yes, there are information assymetries running the opposite way, which is a particularly salient problem for credit and insurance products.) For many businesses, it is important to maintain this assymetry of information and bargaining power, as there's profit in it.

In theory, and I emphasize in theory, competition should eliminate many of the problems these assymetries create for consumers, but there's no such thing as a perfect, complete market, just varying degrees of market imperfection, so competition alone cannot be relied upon to solve everything. What, if anything else, should be done is an open question, but when one looks at a range of seemingly unconnected recent public policy issues, a troubling common theme emerges.

Instead of a laboratory of experiements to help level the b2c playing field, we see a different trend emerging:  a distinct anti-consumer agenda that aims to reduce consumer bargaining power and information.  Consider the common theme that runs through the following issues: 

  • AT&T v. Concepcion (waiver of class actions in arbitrations)
  • Attempts to bust up public employee unions (and attacks on unions in general, such as the failure of Card Check legislation)
  • Citizens United (corporate speech rights)
  • Attempts to retain the current corrupt swipe fee system (failure of antitrust)
  • Attacks on public health insurance (prohibition on Medicare bargaining over prescription drug prices and the death of the public option)
  • Attempts to first kill off and now to maim the Consumer Financial Protection Bureau

Continue reading "The Anti-Consumer Agenda" »

The Morality of Strategic Default

posted by Adam Levitin

Professor Curtis Bridgeman (FSU College of Law) has an article on The Morality of Jingle Mail:  Moral Myths About Strategic Default.  I have a fundamental philosophical disagreement with the article, but it's got a lot of very good, clear analysis of arguments about strategic default, including a very useful typology of argument.  

Continue reading "The Morality of Strategic Default" »

Perceptions of Income Inequality

posted by Bob Lawless

A friend alerted me to "Building a Better America -- One Wealth Quintile at a Time," an article by Michael Norton of the Harvard Business School and Dan Ariely of Duke University and that appears in the current issue of Perspectives on Psychological Science. Although a discussion of the paper kicked around in the blogosphere last fall, I missed it. Credit Slips readers might find the paper interesting but, if you're like me, might not otherwise see it. Here is the abstract:

Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of “regular” Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality. First, respondents dramatically underestimated the current level of wealth inequality. Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.

A full version of the paper can be found on Professor Norton's web site.

Building a Culture of Compliance

posted by Annelise Riles

I was scheduled to speak at the AALS Financial Institutions breakfast this morning, but due to flight cancellations I was unfortunately unable to attend. I’m posting below a summary of what I intended to say there, and which I had already planned to share with the readers of Credit Slips anyway. I wanted to talk about what anthropological research among market participants and regulators tells us about how to change the way people behave in the financial markets.  After all, the whole point of regulation is just this--to change behavior. Yet how do you do it?

Continue reading "Building a Culture of Compliance" »

What Can We Learn from Wikileaks About Market Regulation--or, Is Transparency Always a Good Thing?

posted by Annelise Riles

In the wake of the Wikileaks debacle, we have started to see some conversation in the editorial pages about whether transparency is always a good thing in international affairs. The point is that there are times when allowing the parties to talk in private may help to reach optimal outcomes for all sides. As we learn more about the personalities and motivations behind the leaks, also, the image of the whistleblower as the pure-hearted pursuer of truth and justice is getting a bit tarnished. It is a complicated issue, with room for reasonable people to disagree, but that in itself is news: it used to be that if you were against transparency you had to be for cronyism, corruption, and fraud, and in fact everybody everywhere felt compelled to assert that they were of course in favor of full public disclosure. Now we are not quite so sure.

I think that some of the heatlhy skepticism--or at least complexity of thought--about transparency that is coming into the public debate about foreign affairs also has a place in the conversation about the regulation of financial markets. Why?

Continue reading "What Can We Learn from Wikileaks About Market Regulation--or, Is Transparency Always a Good Thing?" »

Welcome Annelise Riles

posted by Adam Levitin

Credit Slips would like to welcome Annelise Riles as a guest blogger. Annelise is the Jack G. Clarke Chair in Far East Legal Studies and Professor of Anthropology at Cornell University, where she teaches in both the Law School and the Anthropology Department. Annelise's work examines financial institutions and networks from an anthropological perspective.  

As a would-be historian, I am a particular fan of anthropological (and sociological) studies of consumer finance and the institutions involved there in. There aren't many, but they bring a much needed dose of reality to a field that is too often analyzed through economic theory. Legal scholarship rarely engages in the sort of qualitative field interviews that are the bread and butter of anthropology. (I recognize that there are important exceptions, including work by co-bloggers and past guest bloggers.) This is not just a matter of pesky internal review boards, but simply because this method of acquiring knowledge is not hard-wired into legal academia. (Given that it is somewhat analogous to the deposition, there's a lingering irony.) While we are not all going to becoming anthropologists, there's an enormous amount we can learn from the anthro literature about how regulators and market participants actually think , and I'm thrilled that Annelise will be sharing some of the insights with us on the Slips. Welcome Annelise!

Market Governance Is About People (And How They Think)

posted by Annelise Riles

Hello everyone and thank you so much to Bob and Adam for bringing me into this exciting conversation. This week I want to raise with you a few thoughts about the way forward on financial regulation that have come out of interviewing and observing regulators in their interactions with market participants over ten years. My research has been mainly in Japan but involves some US components as well.

Continue reading "Market Governance Is About People (And How They Think)" »

Principles Aren't Always Enough; Rules Are Needed Too.

posted by Ethan Cohen-Cole

In my last posting, I discussed the tradeoffs of regulation on the consumer side, and the extent to which disclosure would be sufficient to resolve consumer protection issues.

Here, I pose a simple problem to illustrate why principles based regulation would be inadequate.

Continue reading "Principles Aren't Always Enough; Rules Are Needed Too." »

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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