Repurchase Agreements and the Law: How Legislative Changes Fueled the Housing Bubble

Fiona Maclachlan ()

Journal of Economic Issues, 2014, vol. 48, issue 2, 515-522

Abstract: I examine the recent evolution of the law with respect to repurchase agreements. Repurchase agreements (repo) are short-term debt contracts that were central in the expansion of liquidity during the run-up to the financial crisis. The irresponsible and disruptive lending within the housing market was related to excessive financial institution leverage made possible through repo. A key issue in the law relating to repo is the status of the collateral in the event of bankruptcy of the borrower. I trace the development of this aspect of the law through interpretations of the bankruptcy code by the courts, as well as through legislated changes to the code.

Date: 2014
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DOI: 10.2753/JEI0021-3624480227

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