ABSTRACT
All financial transactions are an exchange of money today based on the expectation of the receipt of money at future dates. An increase in the breadth, depth, and completeness of financial markets should allow the risks of non-completion of transactions to be spread to those in the system most able to bear them and prevent the transformation of disappointment into instability. Starting in the mid-1980s, there has been a gradual erosion of the limits of the regulatory segmentation imposed on the financial system under the 1933 Glass-Steagall legislation. Nonetheless, the intended result – a large and growing source of income for banks – also produced a largely ignored and unnoticed increase in financial fragility. But, as long as house prices continued to rise, and new households were found to continue to demand new or refinanced mortgages, the increasingly fragile and uncertain payments commitments continued to be met.
