Ethics & International Affairs Volume 21.1 (Spring 2007): Articles: Risks of Lending and Liability to Others [Abstract]

Mar 23, 2007

Risk and liability change the initially stipulated terms of contracts, overruling their otherwise binding nature. Risk encourages careful assessment of debtors' abilities to service debts. Errors and negligence in assessment, and even external shocks, make creditors suffer losses. Disregarding one's duty of care or professional standards, or engaging in tortious or illegal behavior makes actors liable to compensate for any resulting damage—a necessary systemic element of the framework markets need to function well. Neither mechanism was allowed to work properly in sovereign lending.

This essay analyzes why risk and liability are necessary mechanisms of well—functioning markets, and discusses how risk can be handled. In the United States, inappropriate regulatory norms hindered providing against risk in the case of sovereign debt. The absence of liability—a market imperfection—has produced debts no decent legal system would recognize as legitimate domestic debt, thus aggravating the sovereign debt problem, and giving rise to concepts such as criminal, odious, and illegal debts. Discriminating sovereign debtors and disobeying the rule of law caused market distortions, resulting in not only grave damages to debtors, but also losses to creditors that the mechanisms risk and liability would have avoided. Finally, I briefly present proposals to repair these shortcomings in order to avoid the disasters of the past.

To read or purchase the full text of this article, click here.

You may also like

AUG 2, 2022 Journal

Ethics & International Affairs Volume 36.2 (Summer 2022)

The editors of Ethics & International Affairs are pleased to present the Summer 2022 issue of the journal! The highlight of this issue is a roundtable organized ...

President Barack Obama chairs a UN Security Council meeting, September 2009, New York, NY. <br>CREDIT: <a href="https://commons.wikimedia.org/wiki/File:Barack_Obama_chairs_a_United_Nations_Security_Council_meeting.jpg">White House/Pete Souza/Public Domain</a>

OCT 7, 2020 Podcast

The United Nations at 75: Looking Back to Look Forward, Episode 1, with David M. Malone

David M. Malone, rector of United Nations University, speaks about the Security Council, the Sustainable Development Goals, peacekeeping, and more. How can the UN continue ...

OCT 2, 2020 Journal

Ethics & International Affairs Volume 34.3 (Fall 2020)

At the core of this issue is a collection of essays organized and guest-edited by Margaret P. Karns called "The United Nations at Seventy-Five: Looking ...