FINANCIAL CRISES AND ECONONOMIC INSTITUTIONS AN INSTITUTIONAL ACCOUNT OF THE U.S.A. FINANCIAL CRISIS

This paper uses the framework of institutional economics to explain the recurring phenomena of financial crises. How do various institutions fail in predicting, responding to and reducing the burden of the crises? How do they further contribute to the domino effects that nearly led to the collapse of financial institutions worldwide? Institutional economics holds that a country's institutions - its political, educational, and social systems - determine and characterize its economy. Institutional environments shape the way people perceive economic relations. The interdependence of economics, law and morality characterize the ability of institutions to act on unforeseen circumstances and to adapt to changes.