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Financial socialism: The role of financial economics in economic disorganization

  • Ehret, Michael
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    A growing body of research shows evidence that financial economics played a significant role in recent financial crises, such as the subprime mortgage crisis, Enron and Long-Term Capital Management. This track record is a wake-up call for managers and investors who employ financial economic models. This paper demonstrates how financial economics decouples market prices from the valuation by customers and resource owners in a systematic way. As an organization principle, financial economics replaces value-driven investment by a theory-driven ruling of anonymous financial markets – a scenario warranting the title “financial socialism”. Implications for customer valuation, financial accounting, and a maxim for the sound application of financial economic models are presented.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0148296313001112
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    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 67 (2014)
    Issue (Month): 1 ()
    Pages: 2686-2692

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    Handle: RePEc:eee:jbrese:v:67:y:2014:i:1:p:2686-2692
    Contact details of provider: Web page: http://www.elsevier.com/locate/jbusres

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