A re-visit to Minsky after 2007 financial meltdown

The 2007 financial crises has brought to eminence and a long overdue recognition to the ideas of Hyman P. Minsky who is a post-Keynesian authority on monetary theory and financial institutions. He had extensively studied the economic fluctuations and recurring instability of the financial system in a capitalist economy in an attempt to understand and explain the characteristics of financial crises. Many analysts believe that Minsky's framework of analysis has accurately anticipated the financial crisis of 2007 and termed it as the Minsky moment. His financial instability hypothesis (FIH) rejected the mainstream economic concepts of the efficient market theory which believes that force of invisible hands keep the markets clear. Minsky observed that periods of financial instability are common and it is the government's massive interventions since the World War II which has contained their effects. In the aftermath of financial meltdown of 2007, many financial analysts e.g. Magnus 2007 ; McCauley, 2008 and economists like Kregel 1997, 2008 ; Papadimitriou and Wray 2008 ; Passarella 2010 ; Tymoigne and Wray 2008 ; Vercelli 2001, 2009 ,Wray 2008), Damiano Silipo 2010, have referred to the contributions Minsky as fundamental to understand the tendency of capitalistic economies to fall into recurring crises and for a consistent policy design. Minsky believed that regulation should be linked to the structure of the financial system and effective policy making requires an understanding of the dynamics of an accumulating capitalist economy. These policies would have to constrain instability through creation of institutional ceilings and floors while at the same time they would have to address the behavioral changes induced by reduction of instability. Minsky's proposals go far beyond the 'invisible handwaves' of free market ideologues.