Minsky’s Cushions of Safety: Systemic Risk and the Crisis in the U.S. Subprime Mortgage Market
Jan Kregel
Economics Public Policy Brief Archive from Levy Economics Institute
Abstract:
The current crisis in the financial systems of developed countries is often explained in terms of Hyman P. Minsky’s financial fragility hypothesis. Minsky was an economist at the Levy Institute and the foremost expert on credit crunches. His hypothesis was that the structure of a capitalist economy becomes more fragile over a period of prosperity; that is, endogenous processes breed financial and economic instability. In this brief, Senior Scholar Jan Kregel explains how the current crisis differs from the traditional Minsky hypothesis. He reviews Minsky’s concept of a margin or “cushion” of safety, financial fragility, and debt deflation. He concludes that, while the current subprime mortgage crisis involves both Ponzi financing and declining margins of safety, these conditions are not the result of endogenous processes. Rather, the crisis is the result of insufficient margins of safety based on how credit worthiness is assessed (the undervaluation and mispricing of risk) in the new “originate and distribute” financial system.
Date: 2008-01
New Economics Papers: this item is included in nep-pke and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (33)
Downloads: (external link)
http://www.levyinstitute.org/pubs/ppb_93.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:lev:levppb:ppb_93
Access Statistics for this paper
More papers in Economics Public Policy Brief Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).