Money Manager Capitalism and the Global Financial Crisis

Levy Economics Institute, Working Papers No. 578

24 Pages Posted: 26 Sep 2009

See all articles by L. Randall Wray

L. Randall Wray

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

Date Written: September 25, 2009

Abstract

This paper applies Hyman Minsky’s approach to provide an analysis of the causes of the global financial crisis. Rather than finding the origins in recent developments, this paper links the crisis to the long-term transformation of the economy from a robust financial structure in the 1950s to the fragile one that existed at the beginning of this crisis in 2007. As Minsky said, “Stability is destabilizing”: The relative stability of the economy in the early postwar period encouraged this transformation of the economy. Today’s crisis is rooted in what he called “money manager capitalism,” the current stage of capitalism dominated by highly leveraged funds seeking maximum returns in an environment that systematically under-prices risk. With little regulation or supervision of financial institutions, money managers have concocted increasingly esoteric instruments that quickly spread around the world. Those playing along are rewarded with high returns because highly leveraged funding drives up prices for the underlying assets. Since each subsequent bust wipes out only a portion of the managed money, a new boom inevitably rises. Perhaps this will prove to be the end of this stage of capitalism — the money manager phase. Of course, it is too early even to speculate on the form capitalism will take. I will only briefly outline some policy implications.

Keywords: Hyman Minsky, money manager capitalism, financial crisis, financial instability hypothesis, asset-backed securities, commodities futures markets

JEL Classification: E02, E12, E32, E44, G01, G2

Suggested Citation

Wray, L. Randall, Money Manager Capitalism and the Global Financial Crisis (September 25, 2009). Levy Economics Institute, Working Papers No. 578, Available at SSRN: https://ssrn.com/abstract=1478508 or http://dx.doi.org/10.2139/ssrn.1478508

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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