Global Financial Crisis: A Minskyan Interpretation of the Causes, the Fed’s Bailout, and the Future

Levy Economics Institute of Bard College Working Paper No. 711

31 Pages Posted: 1 Apr 2012

See all articles by L. Randall Wray

L. Randall Wray

University of Missouri at Kansas City; Bard College - The Levy Economics Institute

Date Written: March 30, 2012

Abstract

This paper provides a quick review of the causes of the Global Financial Crisis that began in 2007. There were many contributing factors, but among the most important were rising inequality and stagnant incomes for most American workers, growing private sector debt in the United States and many other countries, financialization of the global economy (itself a very complex process), deregulation and desupervision of financial institutions, and overly tight fiscal policy in many nations. The analysis adopts the “stages” approach developed by Hyman P. Minsky, according to which a gradual transformation of the economy over the postwar period has in many ways reproduced the conditions that led to the Great Depression. The paper then moves on to an examination of the US government’s bailout of the global financial system. While other governments played a role, the US Treasury and the Federal Reserve assumed much of the responsibility for the bailout. A detailed examination of the Fed’s response shows how unprecedented — and possibly illegal — was its extension of the government’s “safety net” to the biggest financial institutions. The paper closes with an assessment of the problems the bailout itself poses for the future.

Keywords: Hyman Minsky, Global Financial Crisis, Financialization, Money Manager Capitalism, Bank Bailout, Quantitative Easing, Financial Crisis Inquiry Report, Fraud, Minsky Moment, Real Estate Bubble, MERS, Federal Reserve

JEL Classification: B31, E30, E32, E50, G21

Suggested Citation

Wray, L. Randall, Global Financial Crisis: A Minskyan Interpretation of the Causes, the Fed’s Bailout, and the Future (March 30, 2012). Levy Economics Institute of Bard College Working Paper No. 711, Available at SSRN: https://ssrn.com/abstract=2031721 or http://dx.doi.org/10.2139/ssrn.2031721

L. Randall Wray (Contact Author)

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

Bard College - The Levy Economics Institute

Blithewood
Annandale-on-Hudson, NY 12504-5000
United States

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