On Democratizing Financial Turmoil: A Minskian Analysis of the Subprime Crisis

Levy Economics Institute Working Paper No. 548

30 Pages Posted: 25 Nov 2008

See all articles by Fadhel Kaboub

Fadhel Kaboub

Drew University

Zdravka K. Todorova

University of Missouri at Kansas City - Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 19, 2008

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 income-generation programs, rather than through exotic mortgage schemes.

Keywords: Minsky, Financial Instability, Wall Street, Subprime Mortgages, Real Estate, Full Employment, Inequality

JEL Classification: B52, B58, E12, E44, B52, G21, G24

Suggested Citation

Kaboub, Fadhel and Todorova, Zdravka K., On Democratizing Financial Turmoil: A Minskian Analysis of the Subprime Crisis (November 19, 2008). Levy Economics Institute Working Paper No. 548, Available at SSRN: https://ssrn.com/abstract=1304265 or http://dx.doi.org/10.2139/ssrn.1304265

Fadhel Kaboub (Contact Author)

Drew University ( email )

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HOME PAGE: http://www.kaboub.com

Zdravka K. Todorova

University of Missouri at Kansas City - Economics ( email )

United States

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