Website review: The Minsky Moment
laodan discovered this in Financial planning
•2 reviews since Jan 28, 2008
financial-planning
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laodan discovered 4 months ago- The Minsky Moment in The NewYorker by John Cassidy
Twenty-five years ago, when most economists were extolling the virtues of financial deregulation and innovation, a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Wall Street encouraged businesses and individuals to take on too much risk, he believed, generating ruinous boom-and-bust cycles. The only way to break this pattern was for the government to step in and regulate the moneymen. ... There are basically five stages in Minsky's model of the credit cycle: displacement, boom, euphoria, profit taking, and panic. ... The current cycle began in 2003, with the Fed chief Alan Greenspan's decision to reduce short-term interest rates to one per cent... The Minsky Moment We are now in the early stages of panic but much of the derivatives (paper) created by banks have still to go up in smoke. In the end the losses by investors and financial institutions could easily reach in the trillions of dollars! How will the financial systems cope with such huge losses? nobody knows for sure but some things are already clear: - financial institutions will want to protect their backs and new loans will become more and more difficult to obtain for individuals as well as for companies. (credit squeeze) - housing prices have still far to go down - consumption will fall during many months and in consequence economic activity will decline for a relatively long time and unemployment will thus increase... In short everything is connected and this crisis will be extremely severe. When the monstrosity of what's going on starts to sink in the minds of the political actors we'll assist at a flurry of new legislation, for as Minsky wrote, "apt intervention and institutional structures are necessary for market economies to be successful". The depression that will follow the stage of panic of this cycle is going to last for a few years and when it ends the economic landscape shall be unrecognizable.
- The Minsky Moment in The NewYorker by John Cassidy
- illuminator rated 4 months ago
- From the page:"a maverick named Hyman P. Minsky maintained a more negative view of Wall Street; in fact, he noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze."
