Moral hazard is endemic to securitization, and the current institutional structure of these markets fails to deal with moral hazard effectively. This failure makes securitized credit markets susceptible to sudden stops. This paper presents a model of securitization institutions illustrating these claims. Drawing on the contributions of Elinor Ostrom and associated scholars, I then use the model to analyze the potential effects of introducing clubs of market participants to asset-backed security (ABS) markets. It is shown that the introduction of clubs can eliminate the propensity of securitized credit markets to experience sudden stops.
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