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To understand subprime behavior and efficient breaches, it is imperative to first examine the necessary social predicate for economic transactions. Accordingly, Part I will offer an overview of society and the market, highlighting the importance of reciprocity and trust to both. Part II will define the economic transactions implicated by this Article: basic contracting, efficient breach of contract, and the subprime behavior of the current economic crisis. Part III will make explicit the nexus between subprime behavior and efficient breaches by explaining that subprime behavior and efficient breaches are linked by shared elements; they are opportunistic in nature, are interested in unilateral gain, involve solely short-term thinking without consideration of long-term effects, completely disregard any widespread third-party or broader social consequences, and entail significant negative externalities. The results of subprime activity suggest that economic behavior possessing these traits diminishes trust in other market participants and in the financial instruments that are designed to facilitate reliable social cooperation. Given these economic and social consequences, I argue that the doctrine of efficient breach should be disapproved as a legal theory, its open promotion. discouraged, and at a minimum its discussion tempered by an honest admission of its deficiencies and practical limitations.

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Georgetown Journal of Legal Ethics



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