A very interesting paper on the effects of the financial crises on imbalance of power (and thus the imbalance of the incidence of costs) between the borrowers and the lenders. The paper is a serious reality check for Irish policymakers in the context of the ‘reforms’ of the Personal Insolvency laws currently being proposed. In fact, the Irish proposed ‘reforms’ actually tragically replicate the very worst implications of the study summarized below.
“Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises” by Atif R. Mian, Amir Sufi, and Francesco Trebbi (NBER Working Paper No. 17831, February 2012 http://www.nber.org/papers/w17831) shows that “debtors bear the brunt of a decline in asset prices associated with financial crises and policies aimed at partial debt relief may be warranted to boost growth in the midst of crises. Drawing on the US experience during the Great Recession of 2008-09 and historical evidence in a large panel of countries, [the study explores] why the political system may fail to deliver such policies. [The authors] find that during the Great Recession creditors were able to use the political system more…………………………………………….
full article at source:http://trueeconomics.blogspot.de/