A more interesting set of questions has to do with time-series dynamics: Why is it that sometimes, things get out of balance, and the existing set of rules is less successful in containing risk-taking? In other words, what does the institutions view tell us about why credit markets sometimes overheat? Let me suggest three factors that can contribute to overheating.
The first is financial innovation. While financial innovation has provided important benefits to society, the institutions perspective warns of a dark side, which is that innovation can create new ways for agents to write puts that are not captured by existing rules.