Instability of the U.S. Financial Model: Reviews Based on the Subprime Crisis

　　Abstract：The combination of direct financing and indirect financing, in addition to complex financial innovations, are key features of the US financial model. An analysis this model shows that it is structured in such a way that permits excessive risk transfers, as well as tolerates asymmetrical information distribution in the market. Thanks to this “uniqueness”, the US system offers an environment conducive to the settlement of many financial deals that suffer from such deficiencies. These accumulated risks and hazards are then channeled into the money market via a myriad of complex financial products that are highly liquid and mobile. The end result is the formation of a confusing web of financial linkages and dealings where each node is tied to all others; not only is this web difficult to untangle in times of crisis, the failure of one could well mean the failures of all others, or in other words, causing a financial “chain reaction”. The spread and persistency of the current subprime crisis is a clear manifestation of such a system failure. The US financial model thus poses an enormous challenge to financial risk management, and those risk control measures that have been implemented so far may not be adequate at addressing the roots of these systemic problems.