The Hyman P. Minsky Hypothesis. An analysis and the effect on the subprime crisis 2007

Term Paper, 2012

23 Pages, Grade: 1,3


Table of Contents

List of Abbreveations

List of figures

1 Introduction

2 Biography

3 Minsky’s theory

4 Analysis
4.1 Essential theories: Marx and Keynes
4.1.1 Keynes
4.2 The Financial Instability Hypothesis
4.2.1 Three types of finance
4.2.2 Instability and business-cycle
4.3 The Sub-prime crisis 2007 – A “Minsky Moment” ?
4.3.1 The late 2000s financial crisis
4.3.2 Was it a “Minsky Moment”?

5 Conclusion


List of Abbreveations

Abbildung in dieser Leseprobe nicht enthalten

List of figures

Figure 1: Karl Marx (source:

Figure 2: John Maynard Keynes (source:

Figure 3: cash-flow system

Figure 4: Progress of the U.S. real estate price index in points (source: Welt-Online, 2011)

Figure 5: U.S. mortgages originated (source: Inside Mortgage Finance)

Figure 6: Image: Sujin Jetkasettakorn

1 Introduction

Financial crisis, a phenomena or a part of an economic and financial cycle which occurs when

“…bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze.” (Cassidy, 2008)

In the following we will take a closer look on the “Financial Instability Hypothesis” (FIH), it will be examined in what extent Hyman Philip Minsky (H.P.M.) predicted the financial crises in his theories and whether it can be proved or not by setting his theoretical aspects in comparison to the late occurrences of the Sub-prime crises.

After giving the most important facts about H.P.M., his Financial Instability Hypothesis will be summarized and illuminated with its main aspects.

Subsequently this hypothesis will be analyzed concerning essential theories that had much impact on his instability thesis, for instance “The General Theory” (TGT) of the economist John Maynard Keynes. Additionally the formation of financial crises will be illustrated with regard to Minsky’s assumption of three different types of asset holders. The Hedge-, the Speculative- and the Ponzi-debtor will be defined and explained concerning how they influence the business-cycle and could lead to a destabilized financial market. With hindsight the Sub-prime crises of 2007, which can also be defined as a financial crisis, main aspects of the development on the financial market and within the economy will be indicated to illustrate the so called “Minsky Moment”.

In the end the conclusion implies not only Hyman Minsky’s advice and solution to avoid another financial crisis in the future but also our opinion upon Minsky’s Instability Hypothesis and its significance with regard to the overall question of: How far does Hyman P. Minsky’s Instability Hypothesis elucidate a financial crisis.

2 Biography

Abbildung in dieser Leseprobe nicht enthalten

Abbildung 1 Hyman Philip Minsky (

Hyman Philip Minsky was born in September 23, 1919 in Chicago, Illinois. His parents were Menshevik emigrants from Belarus. While his mother, Dora Zakon, was an active member of the nascent trade union movement, his father, Sam Minsky, was involved in the Jewish section of the Socialist Party of Chicago.

Minsky received his Bachelor of Science (B.Sc.) in mathematics from the University of Chicago in 1941. After that, he went to Harvard University to study under Joseph Schumpeter and Wassily Leontief. There he earned his Master of Public Administration (MPA) and a Doctor of Philosophy (Ph.D.) in economics.

To underline important facts about his career there is to be said that he taught at Brown University from 1949 to 1958. Thereafter, from 1957 to 1965, he was an Associate Professor of Economics at the University of California Berkeley. Subsequently, in 1965, Hyman Minsky became Professor of Economics at the Washington University in St. Louis, where he taught until 1990.

At the time of his death, he was not only a distinguished scholar at the “Levy Economic Institute of Bard College” but also a consultant to the “Commission on Money and Credit”.

Furthermore, when Minsky died in 1996 at the age of 77, he was a well-known United States (U.S.) economist and well regarded within academia. He was more or less a maverick and pessimist with a negative view of Wall Street and its financial deregulations and innovations. It would take several years before Hyman P. Minsky’s ideas and especially his Financial Instability Hypothesis achieved prominence. Nowadays H.P.M. is known as one of the most famous members of the post-Keynesian school of economics. It even can be assumed that Minsky’s framework of thinking precisely anticipated the current financial crises.


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The Hyman P. Minsky Hypothesis. An analysis and the effect on the subprime crisis 2007
University of Applied Sciences Bielefeld
Multinational Business Finance
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Thomas Hillen (Author)Marlene Klußmann (Author), 2012, The Hyman P. Minsky Hypothesis. An analysis and the effect on the subprime crisis 2007, Munich, GRIN Verlag,


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