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The Natural Instability of Financial Markets

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  • Jan Kregel

Abstract

This paper contrasts the economic incentives implicit in the Keynes-Minsky approach to inherent financial market instability with the incentives behind the traditional equilibrium approach leading to market stability to provide a framework for analyzing the stability induced by the recent changes in bank regulation to modernize financial services and the evolution of financial engineering innovations in the U.S. financial system. It suggests that the changes that have occurred in the profit incentives for bank holding companies have modified the provision of liquidity to the financial system by banks, and the way credit assessment has moved from banks to other actors in the system. It takes the current experience in financial instability created by the expansion, through securitization, of the mortgage market as an example of these changes.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_523.

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Date of creation: Dec 2007
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Handle: RePEc:lev:wrkpap:wp_523

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Web page: http://www.levyinstitute.org

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Cited by:
  1. Sau Lino, 2010. "Instability and crisis in financial complex systems," CESMEP Working Papers, University of Turin 201001, University of Turin.
  2. Mornati, Fiorenzo & Becchio, Giandomenica & Marchionatti, Roberto & Cassata, Francesco, 2009. ""Quando l'economica italiana non era seconda a nessuno" Luigi Einaudi e la Scuola di Economia a Torino," CESMEP Working Papers, University of Turin 200910, University of Turin.
  3. Alberto Botta, 2011. "Fiscal Policy, Eurobonds and Economic Recovery: Some Heterodox Policy Recipes against Financial Instability and Sovereign Debt Crisis," Economics and Quantitative Methods, Department of Economics, University of Insubria qf1114, Department of Economics, University of Insubria.
  4. Carlos Parodi Trece, 2011. "Las crisis financieras: un marco conceptual," Chapters of Books, Departamento de Economía, Universidad del Pacífico, in: Carlos Parodi Trece (ed.), La primera crisis financiera internacional del siglo XXI, edition 1, volume 1, chapter 1, pages 15-76 Departamento de Economía, Universidad del Pacífico.
  5. Arestis, Philip & Singh, Ajit, 2010. "Financial globalisation and crisis, institutional transformation and equity," MPRA Paper 39054, University Library of Munich, Germany.
  6. Iancu, Aurel, 2011. "Models of Financial System Fragility," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 230-256, March.
  7. Leszek Kąsek & Marek Lubiński, 2010. "hyman," Contemporary Economics, University of Finance and Management in Warsaw, University of Finance and Management in Warsaw, vol. 4(1), March.
  8. DemIr, FIrat, 2009. "Capital Market Imperfections and Financialization of Real Sectors in Emerging Markets: Private Investment and Cash Flow Relationship Revisited," World Development, Elsevier, Elsevier, vol. 37(5), pages 953-964, May.
  9. Gökçer Özgür & Korkut A. Ertürk, 2008. "Endogenous Money in the Age of Financial Liberalization," Working Paper Series, Department of Economics, University of Utah, University of Utah, Department of Economics 2008_06, University of Utah, Department of Economics.
  10. Yilmaz Akyuz, 2008. "Managing Financial Instability in Emerging Markets: A Keynesian Perspective," Working Papers, Turkish Economic Association 2008/4, Turkish Economic Association.
  11. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers, Post Keynesian Economics Study Group (PKSG) PKWP1305, Post Keynesian Economics Study Group (PKSG).

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