In summation of these various indicators of financial stress, we have arrived at “The Minsky Moment.” Named after Hyman Minsky, an iconoclastic economist ignored by the mainstream, it refers to the time when market crashes create a severe demand for cash. Minsky foresaw that long periods of stability could subtly lay the ground for seismic periods of instability, and he propounded a sort of natural history of that process, one that well describes the current period of cardiac arrest.
At its core, as Justin Lahart explains the matter, “the Minsky view was straightforward: When times are good, investors take on risk; the longer times stay good, the more risk they take on, until they've taken on too much. Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. ‘This is likely to lead to a collapse of asset values,’ Mr. Minsky wrote.”
So here we are at the Minsky moment with its mad scramble for cash and its collapsing asset values. Lahart wrote that on August 18, 2007, in The Wall Street Journal, and insisted that the Minsky moment had arrived. We have subsequently learned that the Minsky moment can span a yet longer period of time. We seem to be having a lot of these Minsky moments lately. Thou shalt not be a Minsky era, let us pray.
Q&A with David Einhorn
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