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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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  • 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.

Suggested Citation

  • Paul Davidson, 2008. "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?," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(4), pages 669-676, July.
  • Handle: RePEc:mes:postke:v:30:y:2008:i:4:p:669-676
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    Citations

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    Cited by:

    1. Shazia Ghani, 2011. "A re-visit to Minsky after 2007 financial meltdown," Post-Print halshs-01027435, HAL.
    2. J. E. King, 2012. "Post Keynesians and Others," Review of Political Economy, Taylor & Francis Journals, vol. 24(2), pages 305-319, April.
    3. Angel Asensio, 2010. "Macroeconomic trouble and policy challenges in the wake of the financial bust," Working Papers halshs-00496921, HAL.
    4. Silipo, Damiano B., 2011. "It happened again: A Minskian analysis of the subprime loan crisis," Journal of Economics and Business, Elsevier, vol. 63(5), pages 441-455, September.
    5. Faruk Ülgen, 2012. "Paving the way for reconsidering the working of market economies: the Minsky perspective," Post-Print halshs-00868521, HAL.
    6. Alberto Bagnai, 2013. "Unhappy families are all alike: Minskyan cycles, Kaldorian growth, and the Eurozone peripheral crises," a/ Working Papers Series 1301, Italian Association for the Study of Economic Asymmetries, Rome (Italy).
    7. Passarella, Marco, 2012. "A simplified stock-flow consistent dynamic model of the systemic financial fragility in the ‘New Capitalism’," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 570-582.
    8. Edgardo Bucciarelli & Marcello Silvestri, 2013. "Hyman P. Minsky's unorthodox approach: recent advances in simulation techniques to develop his theoretical assumptions," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 36(2), pages 299-324.
    9. Bucher, Monika & Dietrich, Diemo & Hauck, Achim, 2013. "Business cycles, bank credit and crises," Economics Letters, Elsevier, vol. 120(2), pages 229-231.
    10. Michal Jurek & Pawel Marszalek, 2014. "Subprime mortgages and the MBSs in generating and transmitting the global financial crisis," Working papers wpaper40, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    11. Dimitri B. Papadimitriou & L. Randall Wray (ed.), 2010. "The Elgar Companion to Hyman Minsky," Books, Edward Elgar Publishing, number 13122.
    12. Mulligan, Robert F., 2013. "A sectoral analysis of the financial instability hypothesis," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(4), pages 450-459.
    13. 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.
    14. Matthieu Charpe & Peter Flaschel & Christian R. Proaño, 2012. "Income Distribution, Credit Rationing And Households' Debt," Metroeconomica, Wiley Blackwell, vol. 63(3), pages 458-492, July.
    15. 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.
    16. Mulligan Robert F. & Coffee David & Lirely Roger, 2014. "An Empirical Examination of Minsky’s Financial Instability Hypothesis: From Market Process to Austrian Business Cycle," Journal des Economistes et des Etudes Humaines, De Gruyter, vol. 20(1), pages 1-17, July.
    17. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    18. 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.
    19. 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.

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