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Full-Text Articles in Law
Risk Based Student Loans, Michael Simkovic
Risk Based Student Loans, Michael Simkovic
Michael N Simkovic
Credit markets serve a vital function in capitalist economies: evaluating the riskiness of a range of possible investments and channeling resources toward those investments that investors believe are most likely to prove successful. This process is known as the “risk-based pricing” of credit. Ideally, risk-based pricing should lead to lower cost of capital for lower risk investment choices with larger rewards, and therefore more investment in such promising activities. Conversely, risk-based pricing should lead to higher costs of capital, and therefore less investment, in high-risk activities with relatively low rewards. If creditors are well informed and analytic, and borrowers respond …
Competition And Crisis In Mortgage Securitization, Michael N. Simkovic
Competition And Crisis In Mortgage Securitization, Michael N. Simkovic
Michael N Simkovic
U.S. policymakers often treat market competition as a panacea. However, in the case of mortgage securitization, policymakers’ faith in competition is misplaced. Competitive mortgage securitization has been tried three times in U.S. history - during the 1880s, the 1920s, and the 2000s - and every time it has failed. Most recently, competition between mortgage securitizers led to a race to the bottom on mortgage underwriting standards that ended in the late 2000s financial crisis. This article provides original evidence that when competition was less intense and securitizers had more market power, securitizers acted to monitor mortgage originators and to maintain …
Secret Liens And The Financial Crisis Of 2008, Michael N. Simkovic
Secret Liens And The Financial Crisis Of 2008, Michael N. Simkovic
Michael N Simkovic
This article explains the roots of financial crises in one of the oldest and most fundamental problems of commercial law: hidden leverage. Common law courts wrestled with this problem for centuries and developed a time-tested solution: the doctrine of secret liens. If the debtor becomes insolvent, the doctrine of secret liens punishes secret lien holders by subordinating their claims to those of other creditors. In other words, by overriding privately negotiated payment priorities, the doctrine of secret liens creates incentives for transparency. This article argues that legal changes over the last 80 years eroded the doctrine of secret liens, and …
The Effect Of The 2005 Bankruptcy Reforms On Credit Card Company Profits And Prices (2), Michael N. Simkovic
The Effect Of The 2005 Bankruptcy Reforms On Credit Card Company Profits And Prices (2), Michael N. Simkovic
Michael N Simkovic
The U.S. Bankruptcy code changed dramatically with the passage of The Bankruptcy Abuse Prevention and Consumer Protection Act Of 2005. This act increased the costs and decreased the benefits of bankruptcy to consumers. Supporters of the law claimed that it would benefit consumers as well as creditors, because reducing the losses faced by creditors would lower the cost of credit to consumers. Critics of the law depicted it as special interest legislation designed to profit credit card companies at the expense of consumers. This study tests whether the 2005 Bankruptcy Reform: (1) reduced the number of bankruptcies; (2) reduced credit …