Trumbull, Gunnar →

A Brief Postwar History of US Consumer Finance

The growth of the consumer finance sector after World War II provided a bevy of new financial options for Americans. These options led to a "do-it-yourself" approach to consumer finance, and an increase in household risk taking. In this paper, Harvard Business School professors Gunnar Trumbull and Peter Tufano, along with former HBS research associate Andrea Ryan, discuss the major themes that dominated the expansive postwar sector, including some of the factors that set the stage for the recent subprime mortgage crisis. Key concepts include: The authors identify four major consumer finance trends from the past 65 years: an increase in the number of available financial options including innovations; greater access to those options for more Americans; a trend toward a do-it-yourself approach in consumer financial services; and a resultant increase in household risk taking. The type of debt households carry has changed dramatically over the past several decades. The share of household financial liabilities represented by mortgages increased from 59 percent in 1950 to 73 percent in 2008, while the share represented by consumer debt fell from 31 percent to 18 percent. Closed for comment; 0 Comments.

Regulating for Legitimacy: Consumer Credit Access in France and America

Why have American households consistently borrowed so heavily? And why have their counterparts in France borrowed so little? This comparative historical analysis by HBS professor Gunnar Trumbull traces the roots of these different attitudes. In the United States, early welfare reformers embraced credit "on a business-like basis" as an alternative to expansive welfare states of the sort that were emerging in Europe. In France, early social planners saw consumer credit as a drain on savings that threatened to crowd out industrial investment. Regulatory regimes that emerged in the postwar period in the two countries reflected these different interpretations of the economic and social role of credit in society. Key concepts include: Market regulation has conventionally been justified in terms either of the public interest in correcting market failures or of the social welfare interest in restricting market functions. The case of consumer credit suggests that the historical context in which markets have been constructed as legitimate affects the way in which they are regulated. Americans have supported a liberal regulation of credit because they have been taught that access to credit promotes welfare. The French regulate credit tightly because they have come to see credit as both economically risky and a source of reduced purchasing power. These cases suggest that national differences in regulation may trace to historically contingent conditions under which markets are constructed as legitimate. Closed for comment; 0 Comments.