Hyman Minsky

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Hyman Minsky, an American economist, a supporter of State intervention, an opponent of the deregulation of financial markets.

Pointed out the causes of depression and instability of the financial markets:

  • external financing of enterprises and households (credits, loans, debt)
  • to much short-term liabilities in the portfolio of liabilities (due to less the cost of short-term liabilities servicing)
  • "Rolling" of debt - repayment depends on the capacity to enter into another commitment
  • dynamic development of "exotic" financial instruments
  • excessive risk appetite of financial institutions

Model of financial crisis by Minsky

The model is based on the assumption that the volatility of demand for credit and its excessive creation.

The stages of speculative bubble formation and the financial statements collapse:

  • Development of economy by the after upheaval of war, internal shocks, new technologies, new investment opportunities.
  • Funds begin to be invested in new areas. Demand rises in this area, but supply does not satisfy the demand of the market, the consequence is rising prices.
  • The tendency to indebtedness of companies and households increases. First, the purpose of consumption, then investment, and then speculative. The emergence of the so-called: "Herd Behavior"
  • Aversion to risk decreases, increasing the saturation of the market and its overvaluation – the emergence of a "speculative bubble", which quickly bursts.

References

  • Wioletta Nawrot, Globalny Kryzys finansowy XXI wieku, Wydawnictwo Fachowe CeDeWu.PL, Warszawa 2010, s. 11-14
  • Hyman Minsky @ wikipedia.