Political and Institutional Dynamics of the Global Financial Crisis

Asset securitization has been identified as an alchemy that ‘really’ works. Asset securitization yields a number of benefits to a financial system inter alia by reducing overall interest rates, enhancing liquidity in the banking sector and reducing intermediary costs. Yet, the recent global financial crisis (GFC) questioned the very existence of asset securitization. However, post-GFC literature is not hesitant to identify a list of causes that may have facilitated the GFC including subprime lending, executive compensation, de-regulation, etc. Adopting a lexonomic approach, this discussion deviates from the traditional approach by focusing on identifying political and institutional factors behind the GFC. This chapter will investigate U.S political economic decision and then U.S institutional setup that may have facilitated the stage for a GFC.