Towards a Legal Theory of Finance
Columbia University School of Law
November 18, 2012
ECGI - Law Working Paper No. 196
Columbia Law and Economics Working Paper No. 434
This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crises when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival of the system is at stake; that is, at its core. Here, power becomes salient. This helps explain why finance is concentrated around ultimate lenders of last resort and why regulating finance’s core has become so elusive. It also holds lessons for future reforms.
Number of Pages in PDF File: 58
JEL Classification: F5, G01, G2, K0, K22, N20, P1Accepted Paper Series
Date posted: November 19, 2012 ; Last revised: February 28, 2014
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