Guest Post: A Minskian Explanation Of The Causes Of The Current Crisis

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Thu, 11/04/2010 - 13:14 | 700004 OnTheWaterfront
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Austerity Bitchez

Thu, 11/04/2010 - 13:43 | 700128 theXman
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Thu, 11/04/2010 - 14:33 | 700315 Chris Jusset
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Thu, 11/04/2010 - 17:20 | 701078 Mako
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Ending the Fed will do nothing... the present system will collapse and then liquidate.  Lemmings will then start the same system back up.

The article is stupid and that is not the cause of the crisis. 

No amount of regulation or enforcement is going to change the Truth... Math... a system is unable to expand exponentially growth forever.... you can get about 6-8 decades then collapse and liquidation of the Lemmings.


Thu, 11/04/2010 - 19:16 | 701377 tip e. canoe
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Like previous games in the Lemmings series, the object of the game is to guide the lemmings characters to an exit by giving them specific skills.

The storyline of Lemmings Revolution revolves around Weasel characters that once entertained themselves by watching the old adventures of the lemmings. Wanting more, they have captured the lemmings and created new puzzles and mazes, so they can watch the lemmings as they suffer trying to survive the puzzles.

Thu, 11/04/2010 - 13:14 | 700007 SilverIsKing
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And when the dollar bubble bursts, it will forever be referred to as the "Bernanke Nanosecond."

Thu, 11/04/2010 - 13:18 | 700016 hugolp
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Regulations have increased since the 50's. I dont understand what this guy is talking about.

Also, I like Minsky. He seems like an honest thinker, which is something you can not say about all the economists, but he only looked at aggregates and did not check the relation and coordination between the different parts of the markets. That was a big mistake on his part and lead him to wrong conclussions.

Thu, 11/04/2010 - 14:35 | 700322 Ripped Chunk
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Take another look.

In addition, regulation is only effective if there is enforcement.

Thu, 11/04/2010 - 14:43 | 700347 hugolp
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Take another look.

No, seriously. The amount of regulations in the USA have grown exponentially in the USA specially since the 50's. In the 2000 there have been more regulations than in the 90's, in the 90's more than in the 80's and (contrary to popular believe) in the 80's there were as well more regulations than in the 70's, and you could keep going. Just check the data.

Where is this legend about reduced regulation coming from? Its false.

In addition, regulation is only effective if there is enforcement.

Well, but that is what regulations are for, to benefit the big industries and save them from competition. The more you regulate the more corporatist the regime becomes.

Thu, 11/04/2010 - 14:51 | 700380 tip e. canoe
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excellent point

Thu, 11/04/2010 - 16:34 | 700892 Ripped Chunk
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That is a good way of looking at it. Increasing the barriers of market entry for competitors while simultanously having the regulations that cost you profit relaxed.

Fri, 11/05/2010 - 08:35 | 702208 fallst
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Try googling...." Regulatory Capture", Einstein..

Thu, 11/04/2010 - 21:34 | 701662 midtowng
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Regulations haven't increased for the financial industry. They've been cut dramatically since the 50's.

Thu, 11/04/2010 - 13:19 | 700025 Spalding_Smailes
Thu, 11/04/2010 - 13:23 | 700031 israhole
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Thu, 11/04/2010 - 13:21 | 700032 Something Wicke...
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I am gonna be one austere sumbitch. I think I'm turning Japanese. I really think so.

Thu, 11/04/2010 - 13:27 | 700052 Logans_Run
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I believe I am too but I think that is because I have been taking things into my own hands a little too much while attempting to calm my nerves from these market moves.

Thu, 11/04/2010 - 13:23 | 700033 AR
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Thank you Professor for your opinions and ideas, they are well taken. As self professed "old timers" in this business, survivors, and successful, two lines copied below caught our eye:

The firstWhere it will all end is unknown but a complete collapse of the financial system is not out of the question.

The secondHow this will all turn-out I do not know, but another crash and even deeper downturn seems likely.

We sincerely agree with your well-read, and experienced point of view in this regard.  Funny closing thought, as a kid, our father taught us to always listen carefully to what a man had to say when he left under the doorstep of your house...for it is then, that one often shares his most profound ideas. The closing thoughts of your last couple of paragraphs caught our attention (repeated shown above). Good luck to you.


Thu, 11/04/2010 - 13:27 | 700055 michael.suede
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He's inverting cause and effect.

I don't find his explanations attractive at all.

In fact, he doesn't even really offer explanations. 

The ROOT CAUSE of WHY the financial industry was able to get away with the fraud can be pinned solely on the cartelization of banking in the form of the Federal Reserve system and the fact that Federal Reserve Notes were forced upon the public as legal tender.

This allowed the Fed to inflate and manipulate rates, which ultimately lead to the cheap money which enabled the fraud to begin with.

In a free market, when fraud is discovered it is punished swiftly and immediately.  It can not continue once the market determines a particular financial institution is acting in a fraudulent manner.  Only through the coercive intervention of the State in the form of imposed monies and cartels can it continue unabated.

The CAUSE of the .dot com bubble was indeed fraud, but it was the fraud of State created artificial interest rates and monopoly money that enabled the whole thing in the first place.



Thu, 11/04/2010 - 13:36 | 700095 Something Wicke...
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Totally agree. I talk about the political end quite a bit. Kinda glad Tyler doesn't.


Thu, 11/04/2010 - 14:00 | 700190 Baron Robber
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You are incorrect. The fed is not the state, it is a private institution, a criminal cabal really. but it is not the state. Eliminate the  fed and you eliminate half the problem, break up the criminal oligopoly for the second half.

Thu, 11/04/2010 - 14:57 | 700411 tip e. canoe
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respectfully disagree sir baron, the FED is the essence of corporatism as defined by Il Duce - the merging of the state and corporate interests.

Thu, 11/04/2010 - 15:22 | 700534 Common_Cents22
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The FED might as well be the state.  It is so intertwined and powerfully influential.  

Thu, 11/04/2010 - 16:00 | 700729 Bearster
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+3 in 1990 dollars

+3,000,000,000 in Bernanke Money

Thu, 11/04/2010 - 13:28 | 700060 gwar5
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A little timely austerity would have been nice, but now it's too late for poor ol' Danny Bailey and, I agree with the professor, more pain ahead on the road to serfdom.

Thu, 11/04/2010 - 13:33 | 700078 gwar5
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A little timely austerity would have been nice, but now it's too late for poor ol' Danny Bailey and, I agree with the professor, more pain ahead on the road to serfdom.

Thu, 11/04/2010 - 13:36 | 700092 spartan117
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Ok, don't bail out the banks.  Let's see depositors try and withdraw their savings from all the failed banks in this country.  Forget your Minsky melt-up.  We'll have Mad Max Melt Down instead.  Pick your poison.

Thu, 11/04/2010 - 14:01 | 700197 Baron Robber
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hopefully you will be downsized from JPM soon.

Thu, 11/04/2010 - 14:47 | 700361 Lucius Corneliu...
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My guess is that you will see a secessionist movement as part of the end game.  States will basically just say F-off to the USG once their is nothing left.  Empires usually end that way.  Chunks just start falling away, starting at the periphery.

Thu, 11/04/2010 - 13:36 | 700094 Rainman
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"Once accounting fraud is underway, there is a strong incentive to engage in even more audacious fraud to cover the previous crimes ".

Excellent. Right out of the embezzler's reference manual.

Like Visa, this truth is accepted everywhere.

Thu, 11/04/2010 - 14:32 | 700313 Ripped Chunk
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The defenition of a Ponzi scheme.

Thu, 11/04/2010 - 13:59 | 700186 theXman
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Great article! Incisive analysis.

Thu, 11/04/2010 - 14:24 | 700271 Ripped Chunk
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Let's get Bill Black a private merc force and go after the fraudsters.

Thu, 11/04/2010 - 14:41 | 700340 DB Cooper
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I can't see how pumping stock markets and killing the dollar will lead to borrowing by individuals or corporations.  I think most can see the short term nature of the pump and you might as well trade it - but who wants to commit long-term (thru debt) to this charade.  Enjoy the ride for now but the last one left in the market when it goes off the tracks is in for quite a surprise.  Only question in my mind is when that will be?  I'm usually way too early on my trades which can be costly. 3 months, 6 months, 1 year?  I can't see it being more than that - my guess 6 months.

Thu, 11/04/2010 - 14:56 | 700409 RecoveringDebtJunkie
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Arguably, the economy has been going from robust to fragile for more than a century now. Perhaps speculative finance is a natural outgrowth of productive finance, which itself is a natural outgrowth of capitalism.


Thu, 11/04/2010 - 15:19 | 700523 Lux Fiat
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Have been reading Minsky's "Stabilizing an Unstable Economy" as snippets of time allow.  While published in 1986 and looking back at the post WWII era up to that point, it could have been been written yesterday. 

"In light of recent experience, when the difficulties encountered by giant corporations and financial institutions are central to the instability that plague the economy, the very largest concentrations of private power should, in the interest of efficiency as well as stability, be reduced to more manageable dimensions."  My translation - axe TBTF.

"Effective reforms must be consistent with the processes of the economy and not violate the character of the people.  Without an understanding of the economic process, and without a passionate, even irrational commitment to democratic ideals, an agenda for change, in response to a perceived need for change, can become the instrument of demagogues who play on fears and frustrations and offer panaceas and empty slogans."  Can become?  How about "has become".

Thu, 11/04/2010 - 15:54 | 700694 Joe Davola
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I don't disagree with your points, but aren't all slogans empty?

Thu, 11/04/2010 - 17:48 | 701169 Lux Fiat
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Like many a corporate (or personal) mission statement, most are honored in the breach.  However, in rare cases, there are some that are followed, but only the passage of time reveals them.

Thu, 11/04/2010 - 17:52 | 701193 AUD
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"The choice of banks' assets is a directing factor in the allocation of capital between long-and short-term uses. A liquid structure tends to give preference to 'labor intensive' industry, as against the one with larger fixed capital requirements per unit of labor, and ceteris paribus, to a commercial enterprise rather than to an industrial one. The preference for providing circulating capital also tends to strengthen the medium-sized business as against the mammoth concern which in turn is favored by an illiquid system."

Melchior Palyi, 1936

Thu, 11/04/2010 - 21:31 | 701654 Lux Fiat
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A lot of timeless observations came out of that period.  Same can probably be said for periods following earlier global calamities.  As the quote from one movie goes, "And some things that should not have been forgotten were [for all practical purposes] lost.

Thu, 11/04/2010 - 18:59 | 701339 M.B. Drapier
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For anyone who's missed it, L. Randall Wray and William K. Black (yes!) are currently blogging together on HuffPo.

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