Minsky and the Subprime Mortgage Crisis: The Financial Instability Hypothesis in the Era of Financialization

Abstract

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Financialization and external debts in the MENA region: Dynamic forecasting of Egypt’s external debts

“…Then, due to endogenous forces, units are no longer in a position to meet their obligations, which leads to debt deflation and crisis spreading. (Caverzasi, 2014;Whalen, 2017;Palley 2013;Bhaduri, 2011) The hazards associated with financialization have grown in tandem with debt levels which elevated financial market volatility, money supply risk, and inflation risk; exposed borrowers to debt refinancing risks, market changes in interest rates and currency rates, and crowding out of private investments; and increased liquidity concerns as the strain of public debt expanded dramatically. (Bogdan & Lomakovych, 2021) This will not only fail to generate protracted investment but will also lead to financial vulnerability.…”

Minskyan model with credit rationing in a network economy

“…1 Minsky's financial instability theory is centered on investment financing and the relationship between banks and firms. Caverzasi (2014) highlights that banks determine the aggregate debt level and thus they are a key actor in the overall performance of the economy. In Minsky's terms banks "actively solicit borrowing customers, undertake financing commitments, build connections with business and other bankers, and seek out funds."…”

The COVID-19 Crisis: A Minskyan Approach to Mapping and Managing the (Western?) Financial Turmoil

“…The latter case would point toward financial institutions as "the great destabilizers," a feature insufficiently stressed by Minsky's original financial instability hypothesis. This is an important point highlighted byCaverzasi (2014). Indeed, both the Great Depression (1929) and the Great Recession (2008) display clear signs of this type of dynamic, where financial innovations ended up being "financial weapons of mass destruction."…”