Product Details

• Amazon Sales Rank: #178203 in Books
• Published on: 1982-06
• Original language: English
• Number of items: 1
• Binding: Paperback
• 301 pages

Review
Hyman Minsky, who died more than a decade ago, spent much of his career advancing the idea that financial systems are inherently susceptible to bouts of speculation that, if they last long enough, end in crises. At a time when many economists were coming to believe in the efficiency of markets, Mr. Minsky was considered somewhat of a radical for his stress on their tendency toward excess and upheaval. Today, his views are reverberating from New York to Hong Kong as economists and traders try to understand what's happening in the markets. ... Indeed, the Minsky moment has become a fashionable catch phrase on Wall Street." --The Wall Street Journal, August 18, 2007

Customer Reviews

Misnky's several essays on the FIH
This great book is composed of thirteen essays restating and elaborating Minsky's great contribution to economics: the Financial Instability Hypothesis (FIH). The basic idea is that because the realized returns on any investment project are uncertain (and not merely risky), the contractual debts firms and entrepreneurs incur in financing these investments are inherently unstable. The "subjective state of expectations" will give rise to three different methods of financing: hedge, speculative, and ponzi. Hedge financing occurs when there are considerable margins of safety between fixed payments and *expected* returns. Speculative financing is defined by a project which over the course of its operations will generate *expected* revenue that will be greater than fixed payments, even though in the short-term these payments will be larger than initial realized returns. This gives rise to refinancing, which occurs if both parties to the agreement (lender and borrower) agree on the expected rates of return. Ponzi financing is a very unstable state in which the *expected* realized returns are not even sufficient in paying either the interest or principal on loans.

Now one moves from hedge to speculative and then to ponzi finance according to the general mood of the market. If the market is experiencing a "state of tranquility," then the typical margins of safety that characterize hedge finance will be displaced by speculative finance which is still considered safe according to entpreneurial optimism. This is all subject to change, however. The performance of the market, interest rate changes, rapid changes in animal spirits, etc. etc. are all conditions which give rise to market instability.

In so many words, this is basically Minsky's FIH. Minsky believed that this concept was a logical implication of Keynes' work, although he is careful to point out that the FIH stands on its own even if it is interpreted as being inconsistent with Keynes' message.

Minsky is a pleasure to read and I recommend this book to anyone interested in "endogenous instability". Minsky believed that all market disruptions are *systemic* and not merely accidental. This sets his work apart from most professional economists.

Extremely relevant
Minskys analysis the inherent instability of the capitalist economy has long been ridiculed by the naive believers of market efficiency and permanent equilibrium. Reading Minsky in the light of the current credit crisis is a haunting experience. His analysis is both original and flawless.

Unintelligible, even for experts
Some rent seeking editor seems to have collected a pile of Professor Minsky's papers and wrapped them in a snazzy title for public consumption. Although unintelligible to the lay reader, Minsky is justly renowed for his financial instability hypothesis, which holds more or less that investment demand is hostage to the varying price of long lived capital assets and shifts in the debt carrying capacity of financial actors. He divides financial techniques as Julius Caesar divided Gaul: there is Hedge Finance, Speculative Finance and Ponzi Finance (guess which is unsustainable). Exactly how this works is largely a matter of faith and of course calculus for the initiated. The important thing to know is that equilibrium is unsustainable, crisis a recurring theme. Those who read the newspapers already know that. Rather than wasting money on this book, those interested should Google 'Financial Instability Hypothesis'. Excellent two page summaries abound.