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Title:On democratizing financial turmoil: a Minskian analysis of the subprime crisis PDF Logo
Authors:Fernandez, Luisa
Kaboub, Fadhel
Todorova, Zdravka
Issue Date:2008
Series/Report no.:Working papers // The Levy Economics Institute 548
Abstract:The paper uses Minsky's financial instability hypothesis as an analytical framework for understanding the subprime mortgage crisis and for introducing adequate reforms to restore economic stability. We argue that the subprime crisis has structural origins that extend far beyond the housing and financial markets. We further argue that rising inequality since the 1980s formed the breeding ground for the current financial markets meltdown. What we observe today is only the manifestation of the ingenuity of the market in taking advantage of moneymaking opportunities, regardless of the consequences. The so-called democratization of homeownership” rapidly turned into record-high delinquencies and foreclosures. The sudden turn in market expectations led investors and banks to reevaluate their portfolios, which brought about a credit crunch and widespread economic instability. The Federal Reserve Bank’s intervention came too late and failed to usher in adequate regulation. Finally, the paper argues that a true democratization of homeownership is only possible through job creation and incomegeneration programs, rather than through exotic mortgage schemes.
Subjects:Minsky
financial instability
Wall Street
subprime mortgages
real estate
full employment
inequality
JEL:B52
B58
E12
E44
B52
G21
G24
Document Type:Working Paper
Appears in Collections:Working Papers, Levy Economics Institute of Bard College

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