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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.

Suggested Citation

  • Jan Kregel, 2007. "The Natural Instability of Financial Markets," Economics Working Paper Archive wp_523, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_523
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    Cited by:

    1. Monica Hernandez, 2023. "An Unintended Consequence of Uncoordinated International Monetary Policy on Central America," International Journal of Political Economy, Taylor & Francis Journals, vol. 52(1), pages 88-103, January.
    2. Carlos Parodi Trece, 2011. "Las crisis financieras: un marco conceptual," Chapters of Books, in: Carlos Parodi Trece (ed.), La primera crisis financiera internacional del siglo XXI, edition 1, volume 1, chapter 1, pages 15-76, Fondo Editorial, Universidad del Pacífico.
    3. Detzer, Daniel, 2019. "Financialization made in Germany: A review," IPE Working Papers 122/2019, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    4. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    5. alberto, botta, 2011. "Fiscal policy, eurobonds and economic recovery: some heterodox policy recipes against financial instability and sovereign debt crisis," MPRA Paper 33860, University Library of Munich, Germany.
    6. Mediha Mezhoud & Asma Sghaier & Adel Boubaker, 2017. "The Impact of Internal Governance Mechanisms on the Share Price Volatility of Listed Companies in Paris Stock Exchange," Bulletin of Applied Economics, Risk Market Journals, vol. 4(1), pages 1-12.
    7. Lino Sau, 2013. "Instability and Crisis in Financial Complex Systems," Review of Political Economy, Taylor & Francis Journals, vol. 25(3), pages 496-511, July.
    8. Gökçer Özgür & Hüseyin Özel, 2013. "Double Movement, Globalization, and the Crisis," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(4), pages 892-916, October.
    9. DemIr, FIrat, 2009. "Capital Market Imperfections and Financialization of Real Sectors in Emerging Markets: Private Investment and Cash Flow Relationship Revisited," World Development, Elsevier, vol. 37(5), pages 953-964, May.
    10. Özgür Orhangazi, 2011. "“Financial” vs. “Real”: An Overview of the Contradictory Role of Finance," Research in Political Economy, in: Revitalizing Marxist Theory for Today's Capitalism, pages 121-148, Emerald Group Publishing Limited.
    11. Philip Arestis & Ajit Singh, 2010. "Financial globalisation and crisis, institutional transformation and equity," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(2), pages 225-238, March.
    12. Robert E. Prasch, 2011. "After the Crash of 2008: Financial Reform in an Age of Plutocracy," Chapters, in: Steven Kates (ed.), The Global Financial Crisis, chapter 9, Edward Elgar Publishing.
    13. 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.
    14. TRIANDAFIL, Cristina Maria, 2013. "Sustainability of convergence in the context of macro-prudential policies in the European Union," Working Papers of National Institute for Economic Research 130618, Institutul National de Cercetari Economice (INCE).
    15. Thomas Goda, 2013. "The role of income inequality in crisis theories and in the subprime crisis," Working Papers PKWP1305, Post Keynesian Economics Society (PKES).
    16. Srinivas Yanamandra, 2014. "Minsky, Monetary Policy, and Mint Street: Challenges for the Art of Monetary Policymaking in Emerging Economies," Economics Working Paper Archive wp_820, Levy Economics Institute.
    17. 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 200910, University of Turin.
    18. Leszek Kąsek & Marek Lubiński, 2010. "Hyman Minsky – wczoraj i dziś," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 4(1), March.
    19. Gökçer Özgür & Korkut Alp Ertürk, 2013. "Endogenous Money in the Age of Financial Liberalization," Review of Political Economy, Taylor & Francis Journals, vol. 25(2), pages 327-347, April.
    20. Gökçer Özgür, 2021. "Shadow banking and financial intermediation," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 731-757, November.
    21. Giorgos Argitis, 2013. "Veblenian and Minskian financial markets," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(1), pages 28-43.
    22. Yilmaz Akyuz, 2008. "Managing Financial Instability in Emerging Markets: A Keynesian Perspective," Working Papers 2008/4, Turkish Economic Association.
    23. Robert E. Prasch, 2010. "Bankers Gone Wild: The Crash of 2008," Chapters, in: Steven Kates (ed.), Macroeconomic Theory and its Failings, chapter 11, Edward Elgar Publishing.
    24. Yan Liang, 2011. "Money Manager Capitalism, Financialization and Structural Forces," Chapters, in: Joëlle Leclaire & Tae-Hee Jo & Jane Knodell (ed.), Heterodox Analysis of Financial Crisis and Reform, chapter 7, Edward Elgar Publishing.
    25. Iancu, Aurel, 2011. "Models of Financial System Fragility," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 230-256, March.

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