- 著者
- 横川 太郎
- 出版者
- 経済理論学会
- 雑誌
- 季刊経済理論 (ISSN:18825184)
- 巻号頁・発行日
- vol.52, no.3, pp.19-31, 2015-10-20 (Released:2017-09-19)
This paper examines the Subprime Mortgage Crisis as a Minsky Crisis by reexamining Minsky's Financial Instability Hypothesis. The fundamental proposition of the Financial Instability Hypothesis is that "Stability is destabilizing". When we re-examine the process of endogenous destabilization of the financial structure in the capitalist economy from the point of view of financial innovation, it reveals that financial innovations deploy "speculative finance" and "Ponzi finance." Increasing investment to specific capital assets requires new financial products that overcome regulation constraints. New financial products also must have acceptable yield and maturity both for lenders and borrowers. Financial instability develops in periods of "tranquility" when decreasing liquidity preferences attracts economic entities to obtain alternative assets with high interests instead of cash and demand deposits. In this process financial innovations are carried out and a pyramiding of liquid assets is built. However, the chain of financial contracts made in pyramiding of liquid assets increases likelihood of a serious liquidity crisis by the liquidity shortage of central financial institutions or financial markets. It means that financial innovation endogenously increase financial instability. Since 2000s, a huge pyramiding of liquid assets which is called the Originate-to-Distribute (OTD) Model had been created. In the OTD model, subprime mortgages loan originated by commercial banks were converted into CDO. Off-balance sheet entities of commercial banks and hedge funds bought the majority of AAA tranches. Re-securitization made it possible for them to produce large amounts of short-term financial assets from long-term financial assets and to raise funds from MMMF and Securities Lenders in short term using such as repo and ABCP. MMMF raised funds from selling the shares to households and firms. Securities Lenders raised funds from long-term savings of the household sector. However, the downgrading of subprime MBS by rating agencies since June 2007 invoked liquidity crisis in the CP market and the repo market. It made it impossible for off-balance sheet entities of commercial banks and hedge funds to raise funds in those markets. Money center banks which provided liquidity support to off-balance sheet entities and investment banks which provided fund to hedge funds through repo and prime brokerage made losses. Collapse of Lehman Brothers in September 2008 caused run on MMMF and Securities Lenders. The run reduced investment and exacerbated the liquidity crisis further. In short, the OTD Model which constituted of banks, off-balance entities, hedge funds, MMF and Securities Lenders formed a chain of financial contracts to earn interests from the interest gaps. This scheme made financial structure vulnerable to liquidity shortage. The chain of financial contracts was collapsed by downgrading of subprime MBS. This entailed huge liquidity crisis and severe depression. I conclude from the point of endogenous destabilization that Subprime Mortgage Crisis is one of a Minsky Crisis.
- 著者
- 横川 太郎
- 出版者
- 経済理論学会
- 雑誌
- 季刊経済理論 (ISSN:18825184)
- 巻号頁・発行日
- vol.49, no.1, pp.64-75, 2012-04-20 (Released:2017-04-25)
This paper examines rise and fall of non-traditional business of investment banks in neo-liberal era basing on Minsky's theory of the Stage of Capitalist Financial Development. In the United States, "Managerial Capitalism" was established through the Great Depression and following World War II. Under the prosperous Managerial Capitalism, money managers collected small savings from the households and invested them in stock market as long term investments. It created virtuous cycles of the rise of stock prices and economic growth in the early 1960s. When the US economy was destabilizing after 1966, Managerial Capitalism lost its stability. Under the new environment money managers were expected better performances by the households, and had to transfer their investment models to more active ones. Their active investment strategy strengthened their influence on the stock market, and as a result the existing system fails into malfunctioning. After the 1980s, influence of money manager was further strengthened, exercising their market power. The economy entered the stage of "Money Manager Capitalism". Changes in market environments gave significant impacts on investment banking business. Investment banks faced intensified competition in the fields of underwriting and trading business. Therefore, while strengthening advisory services such as merger and acquisition, they sought new sources of revenue. That was the business for money managers. Investment banks expanded their business by arranging securities for money managers into their preference, and provided prime brokerage services. At the same time, they also acted as money managers themselves. It means that they expanded their business to proprietary trading, merchant banking business and asset management business. As a result, investment banks earned huge profits. Money Manager Capitalism was vulnerable to a financial crisis, because of the preference for high risks and the inadequate "margin of safety". Consequently, non-traditional Investment Banking business incurred huge loss by the Subprime Financial Crisis. It is followed by disappearance of major investment banks which is subject to supervision of CSE program by SEC. However, on the other hand, the profit of traditional investment banking business continued to support the earnings of investment banks. In this sense, it is too early to conclude that the crisis proclaims the end of the investment banking model. In fact, the most serious problem is that, in spite of the underlying cause of crisis, the excessive money managing business by the investment bank became active again. To prevent the recurrence of the crisis, we must suppress excessive investments by money managers, and it is necessary to establish a horizontal regulatory system. Therefore, we have to pay attention to the regulatory reform, Dodd-Franc Act, which was enacted on July 21, 2010 in the United States. We need to check out whether the act is effective in reality and whether it can regulate excessive investment behaviors of money managers.