Preventing the last crisis: Minsky's forgotten lessons ten years after Lehman

Abstract

An in-depth study of the factors that originated the collapse of the U. S. financial system about a decade ago benefits greatly from Hyman P. Minsky's explanations, particularly of the financial system intrinsic to capitalism and its evolution throughout a longer span of time. As borrowers and lenders become excessively confident that their expectations about the future will be fulfilled, it is more likely that a financial debt will prove to be impossible to validate: i. e., in terms of financing structures, the one known as "hedge" is going to give way to the "speculative" and then to the "Ponzi" one. Such phenomenon must be situated in a larger historical framework: it derives from the critique made in the decade of 1980 of the "Big Government" and its role in warranting stability with the specter of recession looming. Because for the banking system the maximization of profit determines a maximization of the loan volume, it is indeed necessary to put into effect the most pertinent bank regulations (not those imposed when conceding primacy to investment banks, to the detriment of commercial ones), and avoid as well the substitution of productivity gains with the capital gains that nowadays prevail in the system. Even though financial fragility will never cease, we must strive to understand its mechanism and try to employ the best bulwark against the instability it leads to time and again.