HYMAN MINSKY CAN IT HAPPEN AGAIN PDF

Career[ edit ] Minsky taught at Brown University from to , and from to was an Associate Professor of Economics at the University of California, Berkeley. He was a consultant to the Commission on Money and Credit — while at Berkeley. Financial theory[ edit ] Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy , with speculative investment bubbles endogenous to financial markets. Minsky stated that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans , and the economy subsequently contracts.

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Career[ edit ] Minsky taught at Brown University from to , and from to was an Associate Professor of Economics at the University of California, Berkeley. He was a consultant to the Commission on Money and Credit — while at Berkeley.

Financial theory[ edit ] Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy , with speculative investment bubbles endogenous to financial markets. Minsky stated that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis.

As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans , and the economy subsequently contracts. And he underscored the importance of the Federal Reserve as a lender of last resort. Such mechanisms did in fact come into existence in response to crises such as the Panic of and the Great Depression. Minsky opposed the deregulation that characterized the s. It was at the University of California, Berkeley that seminars attended by Bank of America executives[ citation needed ] helped him to develop his theories about lending and economic activity, views he laid out in two books, John Maynard Keynes , a classic study of the economist and his contributions, and Stabilizing an Unstable Economy , and more than a hundred professional articles.

Minsky stated his theories verbally, and did not build mathematical models based on them. However, in the wake of the financial crisis of — there has been increased interest in policy implications of his theories, with some central bankers advocating that central bank policy include a Minsky factor.

The New Yorker has labelled it "the Minsky Moment". He identified three types of borrowers that contribute to the accumulation of insolvent debt : hedge borrowers, speculative borrowers, and Ponzi borrowers.

The "hedge borrower" can make debt payments covering interest and principal from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i. The "Ponzi borrower" named for Charles Ponzi , see also Ponzi scheme borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.

If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i. As with a line of dominoes , collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.

Lenders only provided funds to ponzi borrowers due to a belief that housing values would continue to increase. Demand for housing was both a cause and effect of the rapidly expanding shadow banking system , which helped fund the shift to more lending of the speculative and ponzi types, through ever-riskier mortgage loans at higher levels of leverage. This helped drive the housing bubble, as the availability of credit encouraged higher home prices.

Since the bubble burst, we are seeing the progression in reverse, as businesses de-leverage, lending standards are raised and the share of borrowers in the three stages shifts back towards the hedge borrower.

People naturally take actions that expand the high and low points of cycles. One implication for policymakers and regulators is the implementation of counter-cyclical policies, such as contingent capital requirements for banks that increase during boom periods and are reduced during busts.

He also put forth his own interpretation of the General Theory, one which emphasized aspects that were de-emphasized or ignored by the neoclassical synthesis, like Knightian uncertainty. Levy Economic Institute, New York. John Maynard Keynes.

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