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Household Debt and Economic Crises

Causes, Consequences and Remedies

Heikki Hiilamo

The trajectories of increasing household debt are studied in the contexts of the US and the UK, Germany, the Netherlands, Finland and Norway. Household Debt and Economic Crises examines remedies to prevent and alleviate the over-indebtedness epidemic, creating a conceptual framework with which to analyse the causes and consequences of debt. Hiilamo argues that social policies are needed to tackle the current borrowing crisis that endangers and prevents the full participation in society of individuals with excessive debts.
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Index

Heikki Hiilamo

Angel, S. 13, 121, 133, 135, 147

Anglo-American welfare state traditions 153

Anglo-liberal welfare state model 12, 23

Anglo-Saxon (or liberal) tradition 84

Anna Karenina 75

Anna Karenina principle 75

annual percentage rate 30

Armour, J. 132

asset-based welfare 21

at risk of over-indebtedness (AROI) indicator 133

Averett, S. 120

Baele, L. 5

Baldinucci, Filippo 58

banking regulation 137

bankruptcy 1, 26, 36

see also consumer bankruptcy

Barron, J. M. 80

Batinic, B. 117

behavioural economics 78

Berger, L. M. 129

Bible 5

book of Deuteronomy 144

breach of contract 4

Britt, S. 126

Budría, S. 105, 118, 119

Caju, P. 95

Campbell, J. 114

capitalist economies 58

Caplovitz, D. 67, 73, 79, 80, 89, 91, 108, 115, 124

cash-flow household 13

Catholicism 5

causational mechanisms 104–7

CEPC 109, 139

cessio bonorum 1, 26

ceteris paribus 106, 118

Chang, Y. 125

Chapman, H. Perry 58

child maintenance debts 31

Citizen Advice Bureaux (CABs) 124

commercial creditors 31

commercial debts 31

Conference of European Churches 144

consumer bankruptcy 12, 35, 38–40

consumer credit debt settlement 12

consumer credit markets, liberalization of 60–64

consumer debt 30

Consumer Financial Protection Bureau (CFPB) 142

Consumer Policy Evaluation Consortium (CPEC) report 24, 74, 90, 91, 94, 97, 125–7, 130, 132, 135, 150, 151

Consumer Protection Act (Dodd-Frank Act) 142

cost of living

expenditure, bearing 91–3

individual factors 91–4

individual social risks 91–3

structural factors 89–91

unfortunate circumstances 93–4

costs of debts

economic fluctuations 69–71

financial illiteracy 76–8

financial industry 71–5

individual factors 75–83

reckless spending 79–82

structural factors 69–75

unsuccessful investments 78

credit 4, 6, 8, 9

democratization of 7

credit-based social policy 12, 21–4, 153

credit cards 11, 12, 29

credit contract 6

credit markets deregulation 61

creditors 5, 14, 16, 27, 29, 36, 37, 41, 43, 67, 140

credit reporting systems 140

Crenshaw, Paul 58

Crosnoe, R. 111, 129

Cuesta, M. B. 105, 118–19

Cumming, D. 132

D’Alessio, G. 14

Debt Adjustment Act 52

debtfare 22

debt-fuelled asset price 138

debtors 5, 7, 14, 17, 26–8, 36, 37, 43

debt problems

alleviating 143–52

context of 1–25

in developed countries 6–8

in six countries 8–13

debt recovery 27

debt-related stigma

employment 122–3

human relations 123–7

individual consequences 114–30

innovation potential 131–2

intergenerational effects 127–30

level of trust, society 130–31

mental health 114–16

over-indebtedness to mental health, linking mechanisms 117–20

physical health 120–22

public expenditures 132

societal consequences 130–32

suicide 117

debts 4

collection 20, 24, 25, 27, 30, 35

collectors 32–5

counsellors 38

discharge 36, 37, 56

enforcement 63

increase in costs 69–83

relief models 39

restructuring 52

safety-net 23

settlement 35–9, 52

types and volumes of 28–32

Debt Settlement Act 55

debt-to-asset ratio 11

default-debtors 81, 105

deregulation 75

“de-responsibilizing” debtors 145

deserving poor 5

Desmond, M. 106, 109, 127, 128, 149

Desmond, Matthew 82

Desolate Boedelskamer 26

Dewatripont, M. 138

Dew, J. 124, 125

Dobbie, W. 147

Dodd-Frank Wall Street Reform 142

Dominy, N. 33, 79

draconian regime 9, 52

Draut, T. 118

Drentea, P. 121

drug trafficking 7

Dutch mortgage market 66

Edwards, S. 124

Efrat, R. 105

Elliehausen, E. G. 150

English bankruptcy acts 36

Esping-Andersen, G. 84

EU Consumer Credit Directive (2014/17/EU) 139

European Central Bank (ECB) 65

European Commission 109

European consumer “bankruptcy” laws 4

European Union (EU) 103

European Union Statistics on Income and Living Conditions (EU-SILC) 88–9

Fair Debt Collection Practices Act (FDCPA) 35, 151

false negatives 20

false positives 20

Families and Children Study (FACS) 123

Federal Deposit Insurance Corporation (FDIC) 110

Federal Trade Commission (FTC) 35, 45, 128, 151

finance consumption 7, 8

Financial Activity Tax (FAT) 137

financial capability 76

financial deregulation 22

financial exclusion 109

financial imprudence 76

financial innovations 8

financial liberalization 154

financial literacy 68, 76

financial obligation 31

financial strain 3

Financial Transaction Tax (FTT) 137

Finland 10, 11, 25, 31, 33, 53–4, 62, 95, 98, 113, 129, 134, 140

Finnish Consumer Protection Act 140

Finnish economy 67

First Anglo-Dutch War 58

Fisher, J. D. 85, 126

flexibilization 86

Ford, J. 16, 23, 29, 93

Garcia, J. 118

Gathergood, J. 81, 118

General Motors Acceptance Corporation 8

Gerardi, K. 80

German legislature 49

Germany 31, 40, 48–51, 65, 95, 98, 120, 134

global economic crises 2, 10, 39, 59, 64–7, 72, 94, 114, 139

Great Recession 2

Greenspan, Alan 138

Gross, D. 79

guilt 4

Gutiérrez-Nieto, B. 94

Han, S. 147

Harvey, D. 21

Havlik, R. J. 121

health care providers 19

Heitzmann, K. 13, 135, 147

Heuer, J.-O. 36, 37, 39, 40, 56, 145, 148

Hiilamo, H. 115, 117

hire purchase 7

homo economicus model 77

Houle, J. N. 88, 129

Iezzi, S. 14

Igan, D. 112, 143

incomes

individual factors 86–9

labour market 86

structural factors 83–6

welfare state social policies 83–5

indebted households 11

indebted man 22

inequality rates 85

instant loans 140

International Monetary Fund (IMF) 113

investment household 13

involuntary over-extension 91

Jayadev, A. 69

judgement debt 17

judgment creditors 42, 47

Keese, M. 119, 121

Kempson, E. 33, 79, 89, 123, 124

Kiander, J. 63

Kidger, J. 117

Kiesel, K. 5

Kilborn, J. J. 60, 75, 76, 142, 145

Kim, J. 151

King, Martin Luther Jr. 73

Klein, M. 52

labour market 86

Lavrakas, P. J. 121

Lazzarato, M. 22

Lee, K. Y. 125

Lenton, P. 117

liens 42

life-cycle hypothesis (LCH) 88

Li, W. 147

loan-to-income (LTI) ratios 140

loan-to-value (LTV) ratio 140

low-income borrowers 74

low incomes and assets

economic growth 111–13

education 111

financial exclusion 109–10

financial industry 113–14

housing markets 114

individual consequences 108–11

social participation 108–9

societal consequences 111–14

welfare dependence 110

Lyons, A. C. 85, 126

Making Ends Meet 73, 89

Mak, V. 140

market model 40

Marquette National Bank of Minneapolis v. First of Omaha Service Corp 60

Mason, J. W. 69

McLaughlin, K. A. 115

McLoyd, V. C. 128

medical debts 23, 98, 152

Meltzer, H. 119

mercy model 40

Mertens, D. 61

Mian, A. 64, 71–2, 81, 112–13, 131, 138, 146, 148–9

Money Advice Service 143

mortgage-backed securities 23

mortgage debtors 9

mortgages 12, 22, 30, 138

Mosley, P. 117

Münster, E. 120

Mykyta, L. 129

national domestic income (NDI) 10

neoliberal capitalism 21

Neppl, T. K. 128

Netherlands 12, 51–2, 130, 134

“no income, no assets” (NINA) debtors 37

non-commercial debts 31

Nordic (or social-democratic) tradition 85

Norway 11, 12, 30, 54–5, 63, 98

Noth, F. 5

objective indicators 15

objective poverty status 13

Ochsmann, E. 121

OECD 11, 30, 64

Oksanen, A. 95

Oorschot, Wim van 82

Organisation for Economic Co-operation and Development 10

over-indebted entrepreneurs 41

over-indebted households 15

over-indebtedness 1, 2, 13–15

administrative definition of 16–18

causational mechanisms 104–7

causes of 58–99

consequences of 100–134

country-specific causes of 94–9

country-specific consequences 133–4

debt collection practices 151

debt counselling 150–51

debt discharge effects 147–8

falling into 26–57

financial literacy, improving 141–3

financial markets, regulating 136–9

good lending practices 139–41

intergenerational effects of 25

method and data sources 24–5

modified administrative definition of 18–21

poverty and 102–3

preventing 136–43

socio-economic position and 101–2

stages of 26–8

swift debt discharge 144–7

US model, adoption of 148–50

welfare state policies 151–2

Pacta sund servanda 4

payment collection procedure, UK 46

payment default 20

Payment Order 53, 54

personal bankruptcy 1

personal insolvency regimes 39–57, 133

Finland 53–4

Germany 48–51

Netherlands 51–2

Norway 54–5

United Kingdom 46–8

United States 41–6

personal networks 7

personal responsibility 4

Poppe, C. 5, 8, 29, 33, 34, 81, 82, 97, 124, 131, 142

Porter, K. 147

positive credit reporting systems 140

poverty 13, 14, 82–3, 85, 86

over-indebtedness and 102–3

power imbalance 5

Prasad, M. 21

private creditors 27

private debts 28, 31

public creditors 27

public liabilities 29

public safety 22

Ramadan 5

Ramsay, I. 145, 147–9

recourse loan 44

redemption 4

repayment norm 5

Report, on the Treatment of the Insolvency of Natural Persons 146

Richardson, T. 115, 117

“Right to Buy” scheme 60

Rowntree, S. 86, 92

Schmitz, H. 119, 121

Second World War 59

Selenko, E. 117

Sen, Amartya 103

Sheriff 47

Sint Anthonisbreestraat 1

Smith, J. 120

social epidemiologists 2

“social force majeure” 36

social mobility 21

social norm, breach of 6

social policy solutions 153–5

social risks 6, 83, 88

social stability 21

social stigma 107

socio-economic position (SEP) 101–2

socio-economic status (SES) 101, 104

Soederberg, S. 22

Song, J. 147

Souleles, N. 79

Stoffels, Hendrickje 100

Stringhini, S. 101

student loans 12, 138, 152

Sufi, A. 64, 71, 72, 81, 112, 113, 138, 146, 148, 149

surety 82

System of National Accounts (SNA) 10

tax allowances 154

Thatcher, Margaret 60, 61

Thorne, D. 147

Three Worlds of Welfare Capitalism 84

Tirole, J. 138

Tolstoy, Leo 75

Townsend, Peter 102

trust 4

Turunen, E. 115, 117

“uncooperative” debtors 37

undeserving poor 5

unemployment 60, 63, 121

United Kingdom (UK) 9, 10, 16, 22, 30, 31, 33, 46–8, 56, 59–61, 65, 74, 76, 79, 84, 86, 88–91, 98, 105, 110, 115, 117, 123, 124, 132–4, 138, 140, 143, 152

United States 2, 2, 9, 10, 12, 20, 22–4, 29–31, 33, 34, 37, 40–46, 56, 59, 60, 62, 64, 65, 72–76, 80, 82, 84–86, 88, 89, 92, 94, 97, 98, 105, 110–12, 114–18, 120, 121, 124–9, 133, 134, 140–43, 145, 148, 150–54

unsecured commercial creditors 32

unsecured debts 31

unsustainable debt load 77

US National Study of Families and Households (NSFH) 125

US technological innovation 8

van der Cruijsen, C. 130, 134

van Rijn, Rembrandt Harmensz 3, 26, 58

Vartia, O. 63

Vinokur, A. D. 125, 126

voluntary over-extension 89

wealth inequality 6

welfare state 21, 23

regimes 8

World Values Survey (WVS) data 131

writ of execution 43

Writ of Fieri Facias (Writ of Fi Fa) 47

Zinman, J. 67, 74, 75