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Toward A Legal Theory Of Finance, Katharina Pistor
Toward A Legal Theory Of Finance, Katharina Pistor
Katharina Pistor
This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crises when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival …
Towards A New Transition Economics, Katharina Pistor
Towards A New Transition Economics, Katharina Pistor
Katharina Pistor
In these brief comments I take issue with the thesis expressed in Konstantin Sonin’s conference review that economic transition is a thing of the past. To the contrary, I argue that it has only just begun and so has the process of rethinking the economic theories and models that have framed the subfield of transition economics. Specifically, I point out that the many surprises economists have encountered when confronted with the actual results of the transition process reveal deeper flaws in the analytical framework that informs their analyses and policy prescriptions. If protecting theories and models is of first order …
On The Theoretical Foundations For Regulating Financial Markets, Katharina Pistor
On The Theoretical Foundations For Regulating Financial Markets, Katharina Pistor
Katharina Pistor
How we think about financial markets determines how we regulate them. Since the 1970s modern finance theory has shaped how we think about and regulate financial markets. It is based on the notion that markets are or can be made (more) efficient. Financial markets have been deregulated when they were thought to achieve efficient outcomes on their own; and regulation was designed to lend crutches to them when it appeared that they needed support. While modern finance theory has suffered some setbacks in the aftermath of the global crisis, defenders hold that improving market efficiency should still be the overriding …
Real Vs. Imagined Financial Markets The Regulatory Challenge, Katharina Pistor
Real Vs. Imagined Financial Markets The Regulatory Challenge, Katharina Pistor
Katharina Pistor
We have grown accustomed to regulating financial markets based on imagined, not real markets. Real markets are shaped by and co-‐evolve with institutional arrangements within two fundamental constraints: Imperfect knowledge and the threat of illiquidity. Imperfect knowledge implies that the future is unknown and unknowable and that, therefore, investment strategies developed today will need to be revised, if not reversed, when the future arrives. Illiquidity means that it is impossible to convert all claims into cash at any given moment. It follows that when far-‐reaching downward adjustments to past investment strategies become necessary the illiquidity threat manifests itself and can …