The Law and Economics of Secured Lending

People and businesses can't get credit due to low interest rates, high demand, and excessive interest rates. This book provides an in-depth analysis of the general economic theory of secured lending and the legal framework in Belgium and the United States. It helps legal practitioners understand how credit works and provides answers to legal questions that traditional legal handbooks won't ask.

Format: Hardback
Length: 552 pages
Publication date: 21 June 2021
Publisher: Intersentia Ltd

The credit market is a complex and multifaceted phenomenon that often leaves people and businesses struggling to obtain the credit they need. While the traditional approach of lenders is to increase interest rates for high-risk borrowers, this solution is not always effective. In this book, we will explore the reasons why people and businesses are unable to obtain credit and the challenges that lenders face in providing credit to high-risk borrowers.

One of the primary reasons why people and businesses are unable to obtain credit is the law of supply and demand. Low interest rates attract high demand for credit, but the supply of credit is limited. This creates a situation where there is more demand for credit than there is available credit, leading to credit rationing and higher interest rates for those who are able to obtain credit.

Another factor that contributes to the credit crisis is the ambiguity of economic theory regarding security interests. Common knowledge holds that security interests provide at least a part of the answer to the credit problem, but economic theory has been ambiguous about the role of security interests in the credit market. This ambiguity has led to different interpretations of the law and has made it difficult for lenders to determine the appropriate level of security to require for loans.

In order to address the credit crisis, lenders need to consider a range of solutions. One potential solution is to increase the supply of credit by encouraging banks to lend more money. This can be achieved through government policies such as quantitative easing or by providing incentives for banks to lend to small businesses and individuals.

Another solution is to improve the creditworthiness of borrowers by implementing stricter credit standards and regulations. This can include requiring borrowers to have a higher credit score, providing more collateral for loans, or implementing risk-based pricing models that take into account the borrower's credit history and risk profile.

In addition to these solutions, lenders can also use security interests to mitigate the risk of default. Security interests can take many forms, such as mortgages, liens, and pledges. By requiring borrowers to provide security, lenders can reduce the risk of default and increase the likelihood of repayment.

However, the use of security interests is not without its challenges. One of the primary challenges is the enforcement of security interests. If a borrower defaults on a loan, lenders must take steps. This can be a time-consuming and expensive process, and lenders may not always be able to recover the full amount of the loan.

Another challenge is the potential for abuse of security interests. Lenders may use security interests to take advantage of borrowers by charging excessive interest rates or by foreclosing on their properties without giving them a fair chance to repay the loan. This can lead to financial hardship.

In conclusion, the credit market is a complex and multifaceted phenomenon that requires a comprehensive and interdisciplinary approach to address. While increasing interest rates and using collateral are potential solutions to the credit crisis, they are not without their challenges. Lenders need to consider a range of solutions, including increasing the supply of credit, improving the creditworthiness of borrowers, and using security interests to mitigate the risk of default. By working together, policymakers, lenders, and borrowers can help to create a more stable and sustainable credit market that benefits everyone.

Weight: 1140g
Dimension: 177 x 252 x 41 (mm)
ISBN-13: 9781839701504