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

Kaboub, Fadhel; Fernandez, Louisa; 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.

30 Pages Posted: 3 Oct 2013

See all articles by Luisa Fernandez

Luisa Fernandez

Alvarez & Marsal Taxand LLC

Fadhel Kaboub

Drew University

Zdravka Todorova

Wright State University

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

Fernandez, Luisa and Kaboub, Fadhel and Todorova, Zdravka, On Democratizing Financial Turmoil: A Minskian Analysis of the Subprime Crisis (November 19, 2008). Kaboub, Fadhel; Fernandez, Louisa; 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=2334056 or http://dx.doi.org/10.2139/ssrn.2334056

Luisa Fernandez

Alvarez & Marsal Taxand LLC ( email )

United States

Fadhel Kaboub

Drew University ( email )

36 Madison Avenue
Madison, NJ 07940
United States
973-408-3764 (Phone)
973-408-3142 (Fax)

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

Zdravka Todorova (Contact Author)

Wright State University ( email )

3640 Col. Glenn Hwy.
Dayton, OH 45435
United States

HOME PAGE: http://www.wright.edu/~zdravka.todorova/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
430
PlumX Metrics