The Uneasy Case for the Priority of Secured Credit: A Minskian Sequel

The last 30-or-so years have witnessed several rounds of debate on the desirability (in terms of efficiency or otherwise) of secured credit and the priority that usually goes with it in the debtor’s bankruptcy. Much to the disappointment of those seeking policy lessons from the debate, its outcomes were inconclusive at best. At worst, to the extent that they convincingly suggested that secured credit might be causing inefficiencies at least in some circumstances (mostly where security is granted under circumstances that prevent other creditors from adjusting the terms of their lending) they were widely inconsistent with the across-the-board practical consensus that security (and the priority it affords to the secured lender) is a key factor in the development of credit markets. In addition to being inconclusive, the debate has thus far been conducted exclusively in microeconomic terms. However, recent contributions to our understanding of the role that credit plays in the economy, based on the ideas of the late economist Hyman Minsky, suggest that the micro view, while certainly enlightening, might not be the only, or indeed the most important vantage point from which legal theory could and should inform its views of secured credit and its social benefits and costs. The purpose of this article is to make some initial sketches of this possible research program and posit some arguments why secured credit, and in particular certain of its forms, might exacerbate the harmful role that (certain types of) credit seem to play in the economy. Using examples from the harmonized law of the EU, the article suggests that, disturbingly, European law has thus far mainly lent support to socially harmful forms of secured credit.