The Natural Instability of Financial Markets

Levy Economics Institute Working Papers Series

29 Pages Posted: 19 Dec 2007

See all articles by Jan A. Kregel

Jan A. Kregel

Bard College - The Levy Economics Institute

Date Written: December 17, 2007

Abstract

This paper contrasts the economic incentives implicit in the Keynes Minsky approach to inherent financial market instability with the incentives behind the traditional equilibrium approach leading to market stability to provide a framework for analyzing the stability induced by the recent changes in bank regulation to modernize financial services and the evolution of financial engineering innovations in the U.S. financial system. It suggests that the changes that have occurred in the profit incentives for bank holding companies have modified the provision of liquidity to the financial system by banks, and the way credit assessment has moved from banks to other actors in the system. It takes the current experience in financial instability created by the expansion, through securitization, of the mortgage market as an example of these changes.

Keywords: Financial Markets, Instability, Minsky, Financial Fragility

JEL Classification: G1, G21, G24, G28

Suggested Citation

Kregel, Jan A., The Natural Instability of Financial Markets (December 17, 2007). Levy Economics Institute Working Papers Series. Available at SSRN: https://ssrn.com/abstract=1075684 or http://dx.doi.org/10.2139/ssrn.1075684

Jan A. Kregel (Contact Author)

Bard College - The Levy Economics Institute ( email )

Blithewood
Annandale-on-Hudson, NY 12504
United States
845-758-7700 (Phone)
845-758-1149 (Fax)

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