Contracts (Except for Those of High Paid

Contracts (except for those of high paid professional athletes who believe that they do not have to be held to such trivialities) are documents that require events to take place at the behest of each participant. When the participants are buyers and sellers, a contract is normally written to specific exactly what the buyer will receive from the seller, and what the seller will receive from the buyer. The contract also spells out any terms and conditions of the purchase or sale, and what the consequences will be if the contract is not fulfilled by either party.

As one recent article reports "contracts are mediated by markets, implying that there exists a price for every possible good for each possible contingency over each possible date" (Nosal, 2010, p. 1). As Nosal puts it, people choose to buy or sell goods to maximize their own happiness, and their only constraint is that the "value of what they buy cannot exceed the value of what they sell" (p. 1). The idea is to cover the contingencies when the buyer or seller bites off more than they can chew. This is true whether it is an individual credit card holder or a large corporation or government entity looking to build bridges, companies or expand services. Contracts can be broken by either side and for a myriad of reasons.

What happens when the seller, or the buyer for that matter, cannot deliver on contractual promises? That's when the problems start. Problems surface when one party or the other cannot fulfill their agreements as stipulated by the contract. For instance, if an individual defaults on his or her credit card payment, the credit card company can refuse to pay for future purchases, can levy fees and higher interest rates, and can even send Luigi in to collect monies owed.

In the case of government entities or corporations, many more people are affected and sometimes entire economies can be laid to waste. Solutions to financial mismanagement in cases of huge corporations or governmental agencies are much more complex, and Luigi may as well just stay home. A good example would be the implied contractual agreements made between the Wall Street brokers and their clients regarding the newly packaged and reissued mortgage portfolios that recently wreaked havoc on global economies. Brokers promised huge returns with little risk to investors, and investors promised to keep supplying additional dollars. Yet very few brokers or their clients actually took the time to understand the financial implications of these types of transactions.

There were plenty of individuals with financial expertise that could have spoken out but for some reason refused to do so. It is likely that most of the individuals involved (on both sides of the aisle) totally forgot their responsibilities. Though there were no written contracts spelling out the various risks and obligations of the different parties, investment prospectus are available that provide the needed information. These documents are forms of financial contracts.