Closer inspection of contractual relations, laws and regulations in finance suggests that law is not quite as evenly designed or applied throughout the system. Instead, it is elastic. The elasticity of law can be defined as the probability that ex ante legal commitments will be relaxed or suspended in the future; the higher that probability the more elastic the law. In general, law tends to be relatively elastic at the system’s apex, but inelastic on its periphery. It is thus at the periphery where default is most likely to result in involuntary exit. In contrast, at the apex where the very survival of the system is at stake, law tends to be more elastic by design and/or because the system’s ultimate backstop abrogates the discretionary power to do what it takes to rescue the system. From the elasticity of law, we are led to the political economy of finance. Where law is elastic decisions are not predetermined by legal rules but left to the discretion of ‘‘power wielders.’’ Power can thus be defined as the differential relation to law. Where law is elastic power becomes salient. The critical questions are who exercises it, to whose benefit, how its exercise is legitimated and to whom the power wielders are held accountable.