Borrowing Alone The Theory and Policy Implications of the Commodification of Finance
AbstractOver the past 20 years, finance has become commodified. Firms increasingly obtain finance from securities markets, instead of borrowing from commercial banks with which they have long-term relationships, while Fannie Mae and Freddie Mac package a growing number of mortgages into bonds. When loans are priced by impersonal markets rather than by individual bankers, they become more like commodities. As in many cases when goods are commodified, this trend has important policy implications. This paper describes new Keynesian and social economics perspectives on the difference between traditional and securitized loans, and points out weaknesses in their account of the significance of banking relationships. A social theory of banking, and, particularly, of risk perception, is then developed. Finally, the policy implications of the commodification of finance are examined in light of the social theory.
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Date of creation: 10 Feb 2004
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trust; securitization; banks; social economics; discrimination; social networks;
Other versions of this item:
- Greg Hannsgen, 2004. "Borrowing Alone: The Theory and Policy Implications of the Commodification of Finance," Economics Working Paper Archive wp_401, Levy Economics Institute, The.
- G - Financial Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-15 (All new papers)
- NEP-CFN-2004-02-15 (Corporate Finance)
- NEP-HIS-2004-02-15 (Business, Economic & Financial History)
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