Minsky moment

Short description: Sudden collapse of asset values which generates a credit or business cycle

Different phases leading to Minsky Moment

A Minsky moment is a sudden, major collapse of asset values which marks the end of the growth phase of a cycle in credit markets or business activity.

## Contents

* 1 Description
* 2 Context
* 3 See also
* 4 Notes
* 5 Further reading

## Description

According to the hypothesis, the rapid instability occurs because long periods of steady prosperity and investment gains encourage a diminished perception of overall market risk, which promotes the leveraged risk of investing borrowed money instead of cash. The debt-leveraged financing of speculative investments exposes investors to a potential cash flow crisis, which may begin with a short period of modestly declining asset prices. In the event of a decline, the cash generated by assets is no longer sufficient to pay off the debt used to acquire the assets. Losses on such speculative assets prompt lenders to call in their loans. This rapidly amplifies a small decline into a collapse of asset values, related to the degree of leverage in the market. Leveraged investors are also forced to sell less-speculative positions to cover their loans. In severe situations, no buyers bid at prices recently quoted, fearing further declines. This starts a major sell-off, leading to a sudden and precipitous collapse in market-clearing asset prices, a sharp drop in market liquidity, and a severe demand for cash.[1][2]

As recovery approaches full employment ... soothsayers will proclaim that the business cycle has been banished [and] debts can be taken on ... But in truth neither the boom, nor the debt deflation ... and certainly not a recovery can go on forever.

Hyman Minsky, John Maynard Keynes[3]

The more general concept of a "Minsky cycle" consists of a repetitive chain of Minsky moments: a period of stability encourages risk taking, which leads to a period of instability when risks are realized as losses, which quickly exhausts participants into risk-averse trading (de-leveraging), restoring stability and setting up the next cycle. In this more general view, the Minsky cycle may apply to a wide range of human activities, beyond investment economics.

## Context

The term was coined by Paul McCulley of PIMCO in 1998, to describe the 1998 Russian financial crisis,[2] and was named after economist Hyman Minsky, who noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze.[4] Minsky opposed the deregulation that characterized the 1980s.

Some, such as McCulley, have dated the start of the 2008 financial crisis to a Minsky moment, and called the following crisis a "reverse Minsky journey"; McCulley dates the moment to August 2007,[5] while others date the start to some months earlier or later, such as the June 2007 failure of two Bear Stearns funds.

## See also

* 2008 financial crisis, historical example
* Austrian business cycle theory, which faults excessive credit expansion as the cause of collapse events
* Debt deflation, the ensuing collapse of asset prices and falling overall private indebtedness.
* Deleveraging
* Economic bubble
* Financial economics, overview of various theoretical approaches to market crises
* Hedge, underlying concept (preventative)
* Leverage cycle
* Margin
* Ponzi scheme, underlying concept (causative)
* Sub-prime mortgage crisis, somewhat generalized example
* The bezzle, comparable concept related to scams

## Notes

1. ↑ "In praise of ... Hyman Minsky". The Guardian (London). 22 August 2007. https://www.theguardian.com/commentisfree/2007/aug/22/comment.business.
2. ↑ 2.0 2.1 Lahart, Justin (2007-08-18). "In Time of Tumult, Obscure Economist Gains Currency—Mr. Minsky Long Argued Markets Were Crisis Prone; His 'Moment' Has Arrived". The Wall Street Journal. https://online.wsj.com/public/article/SB118736585456901047.html.
3. ↑ Minsky, Hyman (1975). John Maynard Keynes. McGraw-Hill Education. ISBN 0-07-159301-2.
4. ↑ Cassidy, John (28 January 2008). "The Minsky Moment". The New Yorker. https://www.newyorker.com/magazine/2008/02/04/the-minsky-moment.
5. ↑ McCulley, Paul (April 2009). ﻿Playing solitaire with a deck of 51, with number 52 on offer: Comments before the Money Marketeers Club﻿ (Report). Global Central Bank Focus. Newport Beach, California: Pimco. http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/Global+Central+Bank+Focus+April+2009+Money+Marketeers+Solitaire+McCulley.htm.

## Further reading

* Chin, Brian (18 August 2007). "What's a Minsky moment?". Seattle Post-Intelligencer. http://blog.seattlepi.nwsource.com/buzz/archives/120279.asp.
* Dr Housing Bubble (26 July 2007). "Housing Minsky Moment: 3 Factors. Prime Contagion, Record Foreclosures, and Publicity.". https://drhousingbubble.blogspot.com/2007/07/housing-minsky-moment-3-factors-prime.html.

* v
* t
* e

Financial crises

* Banking panic
* Bear market
* Credit crunch
* Credit cycle
* Currency crisis
* Debt crisis
* Energy crisis
* Flash crash
* Hyperinflation
* Liquidity crisis
* Minsky moment
* Stock market crash

Pre–1000|

* Crisis of the Third Century (CE 235–284)

1000–1760|

* Great Bullion Famine (c. 1400–c. 1500)
* The Great Debasement (1544–1551)
* Kipper und Wipper (1621–1623)
* Tulip mania crash (1637)
* South Sea bubble crash (1720)
* Mississippi bubble crash (1720–1721)

1760–1840|

* Amsterdam banking crisis of 1763
* Bengal bubble crash (1769–1784)
* Crisis of 1772
* Dutch Republic financial collapse (c. 1780–1795)
* Panic of 1785
* Copper Panic of 1789
* Panic of 1792
* Panic of 1796–97
* Danish state bankruptcy of 1813
* Panic of 1819
* Panic of 1825
* Panic of 1837

1840–1870|

* Panic of 1847
* Panic of 1857
* Panic of 1866
* Black Friday (1869)

1870–1914|

* Panic of 1873
* Paris Bourse crash of 1882
* Panic of 1884
* Arendal crash (1886)
* Baring crisis (1890)
* Encilhamento (1890–1893)
* Panic of 1893
* Australian banking crisis of 1893
* Black Monday (1894)
* Panic of 1896
* Panic of 1901
* Panic of 1907
* Shanghai rubber stock market crisis (1910)
* Panic of 1910–11

1918–1939|

* Early Soviet hyperinflation (1917–1924)
* Weimar Republic hyperinflation (1921–1923)
* Shōwa financial crisis (1927)
* Wall Street Crash of 1929
* Panic of 1930

1945–1973|

* Kennedy Slide of 1962

1973–1982|

* 1970s energy crisis (1973–1980)
* 1973 oil crisis
* 1973–74 stock market crash
* Secondary banking crisis of 1973–1975
* Latin American debt crisis (1975–1982)
* 1976 IMF crisis
* 1979 oil crisis
* Brazilian hyperinflation (1980–1982)

1982–2007|

* Brazilian hyperinflation (1982–1994)
* Souk Al-Manakh stock market crash (1982)
* Chilean crisis of 1982
* 1983 Israel bank stock crisis
* Black Saturday (1983)
* Savings and loan crisis (1986–1995)
* Black Monday (1987)
* 1988–1992 Norwegian banking crisis
* Friday the 13th mini-crash (1989)
* Japanese asset price bubble crash (1990–1992)
* 1990 oil price shock
* Rhode Island banking crisis (1990–1992)
* 1991 Indian economic crisis
* 1990s Swedish banking crisis (1991–1992)
* 1990s Finnish banking crisis (1991–1993)
* 1990s Armenian energy crisis (1991–1995)
* Cuban Special Period (1991–2000)
* Black Wednesday (1992)
* 1992 Colombian energy crisis
* 1994 bond market crisis
* Venezuelan banking crisis of 1994
* Mexican peso crisis (1994)
* 1997 Asian financial crisis
* October 27, 1997 mini-crash
* 1998 Russian financial crisis
* 1998–99 Ecuador financial crisis
* Samba effect (1999)
* California electricity crisis (2000–01)
* Dot-com bubble crash (2000–2004)
* 2001 Turkish economic crisis
* 9/11 stock market crash (2001)
* Stock market downturn of 2002
* South American economic crisis of 2002
* 2002 Uruguay banking crisis
* 2003 Myanmar banking crisis
* 2000s energy crisis (2003–2008)
* 2004 Argentine energy crisis
* Nigerian energy supply crisis (2005–)
* 2007 Chinese stock bubble crash
* Zimbabwean hyperinflation (2007–)

2007–08|

* U.S. housing market correction (2006–07)
* 2008 Bulgarian energy crisis
* 2008 Central Asia energy crisis
* 2008 Latvian financial crisis
* 2008–09 Belgian financial crisis
* 2008–09 Russian financial crisis
* 2008–09 Ukrainian financial crisis
* 2008–2011 Icelandic financial crisis
* 2008–2011 Irish banking crisis
* 2008–2014 Spanish financial crisis
* European debt crisis
* Greek government-debt crisis
* Subprime mortgage crisis
* U.S. bear market of 2007–2009

Post–2008|

* 2009 Ecuador electricity crisis
* 2009 Dubai debt standstill
* Venezuelan banking crisis of 2009–10
* 2010 Flash Crash
* 2010–2014 Portuguese financial crisis
* Energy crisis in Venezuela (2010–)
* 2011 Tōhoku earthquake and tsunami stock market crash
* August 2011 stock markets fall
* 2011 Bangladesh share market scam
* 2012–13 Cypriot financial crisis
* 2013 Chinese banking liquidity crisis
* Venezuela economic crisis (2013–)
* Gaza electricity crisis (2013–)
* 2014–2016 Brazilian economic crisis
* Puerto Rican government-debt crisis (2014–)
* 2014–2017 Russian financial crisis
* 2015–16 Chinese stock market turbulence
* 2015–16 stock market selloff
* Zulia energy collapse (2015–)
* Brexit stock market crash (2016)
* 2016 Southeastern U.S. gas shortage
* Venezuelan hyperinflation (2016–)
* 2017 Sri Lankan fuel crisis
* Ghana banking crisis (2017–18)
* 2018 cryptocurrency crash
* 2018 Turkish currency and debt crisis

* List of banking crises
* List of economic crises
* List of sovereign debt crises
* List of stock market crashes and bear markets

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