Normally it is uselessly broad, but I wonder if the problem is information. Standard economic models habitually assume perfect, or at least similar, levels of information to simplify things. Some examples of how differences might appear:
My expectation is that as you go down the size scale, less specialized attention is available for managing debts: investment banks spend virtually all of their time and effort on problems of that kind; mid-size corporations that provide a consumer product or service dedicate a team to the problem; small businesses might keep one or two experts on tap; the middle class and working poor alike mostly either forgo expertise or temporarily engage it for the duration of an important transaction (like buying a house).
Is there any kind of reasoning process like “this institution has many other creditors so it is unlikely that I will get nothing in case of default?”
Is there any kind of reasoning process like “this institution has many other creditors so it is unlikely that I will get nothing in case of default?”
Yes, and this sort of behavior creates Too Big To Fail dynamics, which break the connection between long-run financial success and producing things people want more than the cost of production.
Normally it is uselessly broad, but I wonder if the problem is information. Standard economic models habitually assume perfect, or at least similar, levels of information to simplify things. Some examples of how differences might appear:
My expectation is that as you go down the size scale, less specialized attention is available for managing debts: investment banks spend virtually all of their time and effort on problems of that kind; mid-size corporations that provide a consumer product or service dedicate a team to the problem; small businesses might keep one or two experts on tap; the middle class and working poor alike mostly either forgo expertise or temporarily engage it for the duration of an important transaction (like buying a house).
Is there any kind of reasoning process like “this institution has many other creditors so it is unlikely that I will get nothing in case of default?”
Yes, and this sort of behavior creates Too Big To Fail dynamics, which break the connection between long-run financial success and producing things people want more than the cost of production.