The Demise of Finance-dominated Capitalism
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The Demise of Finance-dominated Capitalism

Explaining the Financial and Economic Crises

Edited by Eckhard Hein, Daniel Detzer and Nina Dodig

This book provides an overview of different theoretical perspectives on the long-run transition towards finance-dominated capitalism, on the implications for macroeconomic and financial stability, and ultimately on the recent global financial and economic crisis. In the first part, the macroeconomics of finance-dominated capitalism, the theories of financial crisis and important past crises are reviewed. The second part deals with the 2007-09 financial and economic crisis in particular. The special focus is on the long-run problems and inconsistencies of finance-dominated capitalism which played a key role in the crisis and its level of severity.
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Chapter 9: The role of incentives for the Great Recession: securitization and contagion

Giampaolo Gabbi, Alesia Kalbaska and Alessandro Vercelli


Most causes and consequences of the financial crisis and the subsequent Great Recession may be investigated from the point of view of incentives. We apply this point of view exclusively to securitization and contagion. Our analysis, however, is not restricted to the role of incentives, but surveys and discusses different aspects of the process of securitization, and of the related financial contagion between countries and economic units, that may be relevant for understanding the Great Recession. The reason to connect the literature on contagion with that on securitization in this chapter is because there is a wide consensus on the observation that the process of securitization has deeply modified the process of propagation of financial distress, although there are different ideas on its determinants and implications. Financial and real contagion can be sparked by fundamental factors affecting price co-movements. Although these propagation mechanisms could be considered normal interconnections, rather than contagion processes in the strict sense of the term, these factors can be triggered by either global or local shocks.

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