Financial socialism: The role of financial economics in economic disorganization

Michael Ehret

Journal of Business Research, 2014, vol. 67, issue 1, 2686-2692

Abstract: A growing body of research shows evidence that financial economics played a significant role in recent financial crises, such as the subprime mortgage crisis, Enron and Long-Term Capital Management. This track record is a wake-up call for managers and investors who employ financial economic models. This paper demonstrates how financial economics decouples market prices from the valuation by customers and resource owners in a systematic way. As an organization principle, financial economics replaces value-driven investment by a theory-driven ruling of anonymous financial markets – a scenario warranting the title “financial socialism”. Implications for customer valuation, financial accounting, and a maxim for the sound application of financial economic models are presented.

Keywords: Financial crisis; Financial economics; Austrian school of economics; Securitization (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:67:y:2014:i:1:p:2686-2692

DOI: 10.1016/j.jbusres.2013.03.017

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