Abstract

This paper applies Hyman Minsky’s approach to provide an analysis of the causes of the global financial crisis. Rather than finding the origins in recent developments, this paper links the crisis to the long term transformation of the economy from a robust financial structure in the 1950s to the fragile one that existed at the beginning of this crisis. As Minsky said, “stability is destabilizing”: the relative stability of the economy in the early postwar period encouraged this transformation of the economy. Today’s crisis is rooted in what he called “money manager capitalism”, the current stage of capitalism dominated by highly leveraged funds seeking maximum returns in an environment that systematically under-prices risk. With little regulation or supervision of financial institutions, money managers have concocted increasingly esoteric instruments that quickly spread around the world. Those playing along are rewarded with high returns because highly leveraged funding drives up prices for the underlying assets. Since each subsequent bust only wipes out a portion of the managed money, a new boom inevitably rises. Perhaps this will prove to be the end of this stage of capitalism—the money manager phase. Of course, it is too early to even speculate on the form capitalism will take. I will only briefly outline some policy implications.

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.