IDEAS home Printed from https://ideas.repec.org/a/mes/ijpoec/v39y2010i1p3-27.html
   My bibliography  Save this article

Inequality-Led Financial Instability

Author

Listed:
  • Fadhel Kaboub
  • Zdravka Todorova
  • Luisa Fernandez

Abstract

The paper uses Minsky's Financial Instability Hypothesis as an analytical framework for understanding the subprime mortgage crisis and for introducing adequate reforms to restore economic stability. We argue that the subprime financial turmoil has deeper structural origins that go beyond the housing market and financial markets. We argue that inequality has been the real structural cause of today's financial markets meltdown. What we observe today is only the manifestation of the ingenuity of the market in taking advantage of money-making opportunities at any cost, regardless of macroeconomic and social consequences. The so-called "democratization of homeownership" suddenly turned into record-high delinquencies and foreclosures. The sudden turn in market expectations led investors and banks to reevaluate their portfolios, which brought about a credit crunch and widespread economic instability. The Federal Reserve Bank's intervention came too late and failed to usher adequate regulation. All attempts to stabilize financial markets will be temporary fixes if the structural inequality problem is not adequately addressed. Finally, the paper argues that a true democratization of home-ownership is only possible through job creation and income generation programs, rather than through exotic mortgage schemes.

Suggested Citation

  • Fadhel Kaboub & Zdravka Todorova & Luisa Fernandez, 2010. "Inequality-Led Financial Instability," International Journal of Political Economy, Taylor & Francis Journals, vol. 39(1), pages 3-27.
    • Handle: RePEc:mes:ijpoec:v:39:y:2010:i:1:p:3-27
    DOI: 10.2753/IJP0891-1916390101
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2753/IJP0891-1916390101
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.2753/IJP0891-1916390101?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Timothy A. Wunder, 2016. "Setting a Principal to Interest Cap on the Issuance of Home Mortgages: a Proposed Change to Mortgage Underwriting Rules Designed to Control Housing Price Inflation," World Economic Review, World Economics Association, vol. 2016(6), pages 1-86, February.
    2. Filippo Gusella & Anna Maria Variato, 2021. "Financial Instability and Income Inequality: why the connection Minsky-Piketty matters for Macroeconomics," Working Papers - Economics wp2021_15.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.
    3. Charles J. Whalen, 2020. "Post-Keynesian institutionalism: past, present, and future," Evolutionary and Institutional Economics Review, Springer, vol. 17(1), pages 71-92, January.
    4. Thomas Goda, 2017. "A comparative review of the role of income inequality in economic crisis theories and its contribution to the financial crisis of 2007-2009," Revista Finanzas y Politica Economica, Universidad Católica de Colombia, vol. 9(1), pages 151-174, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:ijpoec:v:39:y:2010:i:1:p:3-27. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MIJP20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.