Rise In Bankruptcies Research Articles

The real effects of financial technology: Marketplace lending and personal bankruptcy

We examine how financial technology affects households in terms of personal bankruptcy by leveraging exogenous variation in marketplace credit supply to Connecticut and New York residents. We document a persistent rise in bankruptcies in the affected states following sharp decreases in marketplace lending, particularly among low-income households and in areas where marketplace loans for financing medical bills are severely rationed. Borrowers’ indebtedness or local economic conditions do not explain the results. The supply of other consumer credit by banks and finance companies remains unaffected, suggesting that the observed increase in bankruptcies arises principally from reversing access to marketplace credit.

Legal vs. economic explanations of the rise in bankruptcies in 19th century France

Ce texte cherche à expliquer l’évolution du nombre de faillites au cours de la seconde partie du XIXe siècle et le début du XXe. Il propose une explication qui reprend les évolutions de la loi mais introduit également une dimension spatiale. On constate en effet que le tribunal de commerce de la Seine est moins « sévère » que les tribunaux de province et que ses pratiques se diffusent vers les autres régions jusqu’à la réforme de 1889 qui introduit la liquidation judiciaire. Au total, il apparaît que l’évolution des textes légaux est loin d’expliquer l’évolution des faillites. Les pratiques locales, les usages de la loi par les acteurs de la justice et les transformations des entreprises constituent également des déterminants importants.

Accounting for the Rise in Consumer Bankruptcies

Personal bankruptcies in the United States have increased dramatically, rising from 1.4 per thousand working age adults in 1970 to 8.5 in 2002. We use a heterogeneous agent life-cycle model with competitive lenders to evaluate several commonly offered explanations. We find that increased uncertainty (income shocks, expense uncertainty) cannot account quantitatively for the rise in bankruptcies. Instead, the rise in filings appears mainly to reflect changes in the credit market environment: a decrease in the transaction cost of lending and in the cost of bankruptcy. We also argue that the abolition of usury laws and other legal changes were unimportant. (JEL D14, E44, G21, G28)

Universal Health Care: From the States to the Nation?

When I first heard of the Massachusetts state legislation, two things came to mind. One of them was a piece of Canadian history little known to Americans: universal care in that country began with the Canadian provinces, gradually spreading to its federal government. Is that kind of development possible in the United States? The other was the famous 1932 phrase of Supreme Court Justice Louis Brandeis that the states are the of democracy. Could the Massachusetts law serve as a for national universal health care? While the two questions are related, they raise different issues. The Canadian example bears on the direction and trajectory of health care reform, not on its content. Brandeis's phrase encompasses the nature of the reforms. The Massachusetts law is encouraging on both counts, but there are masons to be hesitant in one's hopes. The Canadian movement toward universal care began in 1947 in Saskatchewan. Tommy Douglas, then premier of that province, introduced universal hospital insurance, overturning decades of resistance. Nor was it all that popular with the province's physicians, who staged a famous but unsuccessful strike against it in 1962. As time went on, Alberta adopted similar policies and, most important, Canadian physicians-led by some socially prominent and influential doctors, sometimes called red tories--came to see the advantages of national universal care. In 1984 the last of a number of gradual steps led to the Canada Health Act, the cornerstone of present policy. That policy is a mixture of publicly funded and privately delivered health care, and it rests on five principles: universality, accessibility, comprehensiveness, portability, and public administration. That history is interesting, but its instructional--and inspirational-value for the United States is limited. Up until the 1950s or so, Canadian and American health care both consisted primarily of fee-for-service medicine, limited health insurance, and strong physician resistance to government-dominated health care. The paths of the two countries diverged partly because of cultural differences: Canada is a far more communitarian, less individualist country than the United States, with a strong welfare system, greater friendliness toward government, and a powerful commitment to the value of solidarity. Additionally, its parliamentary system allows for a more decisive pursuit of social goals than does ours. But while Canadian-U.S. historical and cultural differences are important, the idea of the states as laboratories is attractive. To serve effectively in that role, their example must be noted and well publicized, their innovative policies reasonably successful, and they must have policy ingredients that can be used in a national plan. Those elements were in place in the 1930s, when Justice Brandeis used the laboratory metaphor. Much of President Roosevelt's New Deal agenda came out of successful state programs. And, I would add, the times must be ripe to expand suggestive policies from the state to the national level, and to gain traction they must first spread among the states. The times may be ripening now. Once again talk of a health care crisis is in the air, and there is state movement beyond the Massachusetts example. Public opinion surveys show considerable discontent with American health care, the business community is increasingly distressed in trying to cope with ever-rising costs, and a long-awaited stimulus for serious reform may be at hand: middle-class alarm at a deteriorating situation for those previously well covered by insurance. The fact that a majority of personal bankruptcies in this country are occasioned by individual and family health care debts is a sobering figure. If the 46 million uninsured do not catch the congressional eye, maybe the steady increase of the uninsured and the rise in bankruptcies will. Yet some combination of hope and hesitation is in order before thinking that movement among the states may finally do the trick. …

Consumer Bankruptcies and the Bankruptcy Reform Act: A Time-Series Intervention Analysis, 1960–1997

The Bankruptcy Reform Act of 1978, effective on October 1, 1979, significantly altered the basic rules by which consumers file for bankruptcy. Between 1979 and 1997, the number of nonbusiness bankruptcies filed annually rose from 200,000 to 1.35 million, and the rate of bankruptcies per 100,000 adults increased from 129 to 715. A controversial aspect of bankruptcy is how much of this increase can be attributed to the 1978 act. Early empirical studies provide estimates ranging from a low of 6% to a high of 75% for the immediate post-act period. However, two recent studies using longer data series report that none of the increase was due to the act. Previous studies suffer from several econometric problems, including inadequate attention to stochastic properties and stationarity of the data series, as well as data errors due to reporting changes. This paper uses an ARIMA intervention analysis to estimate the impact of the 1978 act. Using adjusted quarterly data for 1960:3 to 1995:4, the data first are examined for unit roots. The tests reject the presence of seasonal unit roots but confirm the presence of a nonseasonal unit root. The empirical analysis therefore is based on logged first differences of bankruptcy filings and filing rates per capita. An ARIMA model is estimated using the preintervention data for 1960:3 to 1979:3. This model is re-estimated for 1960:3 to 1995:4 with the intervention terms included. The intervention model estimates indicate that the 1978 act increased consumer bankruptcies by 36% in the post-act period relative to the pre-act period, or about 72,400 additional bankruptcies per year. Overall, the net impact of the 1978 act was modest compared to the substantial rise in bankruptcies that has occurred since 1979.

Understanding Economic Change in the Gilded Age

An announcement that the Gilded-Age economy is on the agenda produces pained looks around the classroom. These .signs of distress signal that the economic history of the late nineteenth century needs special handling. The first step in this task is to recognize the obstacles in teaching the subject. The chief impediments are the inherent complexities of economics, negative stereotypes about the Gilded Age, and the dual paths of economic change during the period. No single strategy can cut a smooth course through these brambles, but acknowledging their existence helps to avoid becoming entangled in them. Economics frightens many students. Some aspects of the subject are difficult, it is true, but our contemporary culture adds to these complications. Today's teenagers grow up in an affluent society. Most college students and a large proportion of high school students come from middle-class backgrounds, where abundance, not scar city, is their chief economic reference. The vast majority of young Americans do not earn their own living. Few know anything about budgets or accounting; still fewer have experienced the fear of bankruptcy. It's not that kids today are out of touch. They just have little personal basis for understanding the economic realities that faced adults in the Gilded Age. My strategy for coping with these challenges begins with posing some simple questions. I start by asking people earned a living in the period. Answers to this inquiry not only describe the contours of the workforce, but also prompt questions about the goods that workers produced. One can follow up the answers by discussing these items were made. I encourage students to draw on their own experiences and use their imagination in these exercises. A question such as how did a person get a pair of shoes before malls existed? can get the ball rolling. Profiling the workforce leads to questions about much workers were paid and they spent their earnings. At this point I introduce the concepts of standard of living and the distribution of wealth. Students tend to dichotomize Gilded-Age society into a few fabulously wealthy industrialists and a mass of impoverished work ers?a distorted image probably due in part to the period's nickname. While students have a general sense that the United States is today among the richest nations in the world, few know that the standard of living improved substantially for many Americans during the Gilded Age. Nor are they usually aware that the United States out produced all other nations on a per capita basis and in aggregate totals by the end of the nineteenth century (1). Here I take a brief detour into an explanation of real per capita Gross National Product (GNP) and the relationship between productiv ity and incomes. To interject realism into this exercise, I review the volatility of the Gilded-Age economy, which slumped into depression in the 1870s and 1890s. Describing the rise in bankruptcies and the travails of unemployment during these hard-times dramatizes individual fortunes became increasingly interconnected with the overall health of the economy in the industrial age. The Gilded Age conjures up images of robber barons, corrupt politicians, and laissez-faire government, and this is the second obstacle to learning Gilded-Age economics. The stereotypes contain elements of truth, of course. Bold entrepreneurs did accumulate great fortunes, and politicians did cooperate with businesspeople to block regulations. Yet historians can no longer let Charles Beard and Matthew Josephson monopolize the economic story of the era. Several generations of scholars have demonstrated that the plot was far more complex than these early progressive historians indicated. Nonetheless, the robber barons motif remains an entrenched stereotype about the period. The third impediment to understanding the economic history of the Gilded Age lies in its dual paths of development. These twin strands of growth give instructors a lot of ground to cover. One