Finance: Research, Policy and Anecdotes

Some interesting papers from recent conferences.

There is no such thing as finance without politics!   In Politicizing Consumer Credit, Pat Akey and co-authors show how exogenous “promotions” of senators to committee chairman in the U.S. Senate result in more regulatory leniency in the senators’ home states vis-à-vis consumer lending by banks. Specifically, lending to disadvantaged groups (supposedly protected by the Community Reinvestment and Equal Credit Opportunity Acts) decreases significantly, an effect independent of the senator being Republican or Democrat.  One wonders though whether this only benefitted the banks in questions or also had a dampening effect on the overindebtedness of risky borrowers.

Everyone talks about the geographically concentrated effect of Chinese imports into the U.S. on manufacturing employment. Import Competition and Household Debt shows that areas that were more hit by Chinese imports and thus job losses in manufacturing saw a more rapid increase in household debt.   Is this consumption smoothing or too slow adjustments to permanent income shocks? Does consumer credit serve as opium of the 21st century?  It certainly shows the powerful role of consumer credit and household debt in the socio-economic development of the US over the past two decades.  

Ugo Panizza and co-author document in a recent paper that the post-2008 expansion in city-level government debt across China has not only led to fragility concerns (see this recent report) but has also crowded out lending by banks to private sector firms.  Interestingly, state-owned and foreign-owned companies have not been significantly affected. So, short-term crisis stimulus results in long-term lower growth perspectives!        

And to prove that I do (sometimes!) look beyond finance, here is an interesting paper by Alex Trew and co-authors (“East Side Story: Historical Pollution and Persistent Neighborhood Sorting”) who gauge why the East sides of former industrial cities like London or New York are poorer and more deprived?  It seems to be pollution going back to the Industrial revolution that made richer people settle on the side of industrial chimneys where they were less exposed to the pollution.  And as so often in history, these neighborhood differences are persistent, as these patterns continue to hold today!  

Overview