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Is the current financial distress caused by the subprime mortgage crisis a Minsky moment? or is it the result of attempting to securitize illiquid noncommercial mortgage loans?

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Author Info

  • Paul Davidson

Abstract

Does Minsky's theory explain recent market instability? For financial fragility, Minsky argued, specific preconditions must occur. These preconditions have not occurred, therefore recent financial market instability is not a Minsky moment. Instead the recent financial market instability is due to an insolvency problem of large underwriters caused by their attempt to "securitize" (make liquid) noncommercial mortgages (where the latter are normally illiquid assets). The solution for such an insolvency problem is large direct infusions of new capital in these institutions or removing nonperforming loans from their books. An easy money policy per se will not do.

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Bibliographic Info

Article provided by M.E. Sharpe, Inc. in its journal Journal of Post Keynesian Economics.

Volume (Year): 30 (2008)
Issue (Month): 4 (July)
Pages: 669-676

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Handle: RePEc:mes:postke:v:30:y:2008:i:4:p:669-676

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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=109348

Related research

Keywords: financial fragility; illiquidity; insolvency; mortgage-backed assets; securitization;

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Cited by:
  1. Mulligan, Robert F., 2013. "A sectoral analysis of the financial instability hypothesis," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 53(4), pages 450-459.
  2. Silipo, Damiano B., 2011. "It happened again: A Minskian analysis of the subprime loan crisis," Journal of Economics and Business, Elsevier, Elsevier, vol. 63(5), pages 441-455, September.
  3. Marco, Passarella, 2011. "A simplified stock-flow consistent dynamic model of the systemic financial fragility in the 'New Capitalism'," MPRA Paper 28499, University Library of Munich, Germany.
  4. Alessandro Vercelli, 2009. "A Perspective on Minsky Moments--The Core of the Financial Instability Hypothesis in Light of the Subprime Crisis," Economics Working Paper Archive wp_579, Levy Economics Institute.
  5. Eugenio Caverzasi, 2012. "From the Financial Instability Hypothesis to the theory of Capital Market Inflation: a structural interpretation of the sub-prime crisis," DEM Working Papers Series 018, University of Pavia, Department of Economics and Management.
  6. Alberto Bagnai, 2013. "Unhappy families are all alike: Minskyan cycles, Kaldorian growth, and the Eurozone peripheral crises," a/ Working Papers Series, Italian Association for the Study of Economic Asymmetries, Rome (Italy) 1301, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
  7. Bucher, Monika & Dietrich, Diemo & Hauck, Achim, 2013. "Implications of Bank Regulation for Credit Intermediation and Bank Stability: A Dynamic Perspective," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79792, Verein für Socialpolitik / German Economic Association.
  8. Faruk Ülgen, 2012. "Paving the way for reconsidering the working of market economies: the Minsky perspective," Post-Print halshs-00868521, HAL.
  9. Bucher, Monika & Dietrich, Diemo & Hauck, Achim, 2013. "Business cycles, bank credit and crises," Economics Letters, Elsevier, Elsevier, vol. 120(2), pages 229-231.
  10. repec:hal:wpaper:halshs-00496921 is not listed on IDEAS
  11. J. E. King, 2012. "Post Keynesians and Others," Review of Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 24(2), pages 305-319, April.
  12. Shazia Ghani, 2011. "A re-visit to Minsky after 2007 financial meltdown," Post-Print halshs-01027435, HAL.
  13. Boermans, Martijn Adriaan & Moore, Basil J, 2008. "Locked-in and Sticky Textbooks: Mainstream Teaching of the Money Supply Process," MPRA Paper 14845, University Library of Munich, Germany, revised Apr 2009.

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