1 reply to this topic

[nimblebear]

" Minsky theorized that an asset bubble has three stages. In the first, so-called "hedge" investors can pay off the interest and principal from their cash flow. Healthy returns push up prices, attracting the "speculative" investors of the second stage, who can meet their interest payments from cash flow with the help of liquid capital markets, but would have to sell off assets to pay off the principal. In the third stage, "Ponzi" investors rush in, relying on the continual appreciation of the value of the asset to pay the interest or the principal.
If the asset loses value, Ponzi investors lose everything and speculative investors get squeezed. That's the Minsky moment.
Stodgy institution
Even the stodgiest economics institution in the world, the Bank of International Settlements, has a Minskyan analysis of the current situation: "There seems to be a natural tendency in markets for past successes to lead to more risk-taking, more leverage, more funding, higher prices, more collateral and, in turn, more risk-taking," the group said in its annual report last month. Such cycles inevitably end when fundamentals have been overpriced.
The Ponzi investors didn't stop with mortgages, as we now know.
Euphoric investors, greedy for return and insensible to risk, poured money into complex corporate-debt deals that were as questionable as a subprime no-documentation interest-only adjustable-rate mortgage.
"Who now holds these risks, and can they manage them adequately?" the Bank of International Settlements said. "The honest answer is that we do not know." Early signs of an impending credit crunch are everywhere:
Mortgage lenders going out of business, and the lenders left standing are closing their subprime and Alt-A origination channels.
The spread between corporate debt and riskless Treasurys has widened dramatically. Standard & Poor's has said most corporate debt is now speculative grade.
Credit for leveraged buyouts has dried up, with dozens of deals canceled, postponed or repriced. The market for complex derivatives such as collateralized debt obligations has shut down like a "constipated owl," according to bond fund manager Bill Gross.
The price of insuring asset-backed securities against default has soared.

[Douglas]

With Black Hawk Ben leading the Fed, why not take risk. This guy said he would throw money out of helicopter to prevent deflation. How do you get a recession if they're willing to run the printing presses 24 - 7.