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<div><font face="Arial">The Economist Jul 30th 2016 | From the print
edition</font></div>
<div><font face="Arial" size="-3"
color="#DF0000"><b><br></b></font></div>
<div><font face="Arial" color="#1A1A1A"><b> Financial
stability</b></font><font face="Arial" size="-3"
color="#DF0000"><b><br>
</b></font><font face="Georgia" size="+2" color="#2B2B2B">Minsky's
moment</font></div>
<div><font face="Arial"><b>The second article in our series on seminal
economic ideas looks at Hyman Minsky's hypothesis that booms sow the
seeds of busts</b><br>
<br>
<u
>http://www.economist.com/news/economics-brief/21702740-second-articl</u
>e-our-series-seminal-economic-ideas-looks-hyman-minskys</font><br>
<font face="Arial"></font></div>
<div><font face="Arial"><b>Excerpts</b></font><br>
<font face="Arial"></font></div>
<div><font face="Arial">Minsky's conclusion was
unsettling.</font></div>
<div><font face="Arial"><br></font></div>
<div><font face="Arial">Minsky was a maverick.</font></div>
<div><font face="Arial"><br>
His challenge to the prophets of efficient markets was even more
acute.<br>
<br>
A new version of the "Handbook of Macroeconomics", an
influential survey that was first published in 1999, is in the works.
This time, it will make linkages between finance and economic activity
a major component, with at least two articles citing Minsky. As Mr
Krugman has quipped: "We are all Minskyites now."</font><br>
<font face="Arial"></font></div>
<div><font face="Arial">Central bankers seem to agree. In a speech in
2009, before she became head of the Federal Reserve, Janet Yellen said
Minsky's work had "become required reading". In a 2013
speech, made while he was governor of the Bank of England, Mervyn King
agreed with Minsky's view that stability in credit markets leads to<b>
exuberance</b> and eventually to instability. Mark Carney, Lord King's
successor, has referred to Minsky moments on at least two
occasions.</font><br>
<font face="Arial"></font></div>
<div><font face="Arial">But in time, memories of the 2008 turmoil will
dim. Firms will again race to expand, banks to fund them and
regulators to loosen constraints. The warnings of Minsky will fade
away. The further we move on from the last crisis, the less we want to
hear from those who see another one coming. </font><br>
<font face="Arial"></font></div>
<div><font
face="Arial"><u
>http://www.economist.com/news/economics-brief/21702740-second-articl</u
>e-our-series-seminal-economic-ideas-looks-hyman-minskys</font><br>
<font face="Arial" size="-1" color="#1A1A1A"></font></div>
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<div><font face="Geneva" color="#000000">"Still, the boom of the
1980s was unique. Not only did creditors lend more freely than they
had in the past, but the government intervened more actively than it
had ever done before to absorb the inevitable losses."<br>
<br>
"The fundamental investment question is whether even the government
is big enough to underwrite, with good money, the losses born of the
lending practices of the 1980s."</font><br>
<font face="Geneva" color="#000000"></font></div>
<div><font face="Geneva" color="#000000">"By standing behind good
banks and bad banks alike, the government in effect removed the oldest
charter in banking -- that is, safekeeping."</font></div>
<div><font face="Geneva" color="#000000"><br></font></div>
<div><font face="Geneva" color="#000000">"In the early 1990s a
number of long-running trends were apparently cresting Š. Tommy
Mullaney, eleven, of Crownsville, Maryland, returned home from camp in
the summer of 1990 to find his name inscribed on a MasterCard complete
with a $5,000 credit line. 'I jumped up and down and said Wow - the
hologram was cool,' Tommy told the Washington Post. 'But it sure made
me wonder who was running that bank'."<br>
<br>
James Grant.<i> Money of the Mind: Borrowing and Lending in America
from the Civil War to Michael Milken.</i> Farrar Straus Giroux.
1992.<br>
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