Why capitalism fails - The Boston Globe

Why capitalism fails - The Boston Globe

Have you heard about Hyman Minsky? Well, you're not the only one.
This economist described with prescient clarity the unstable nature of capitalism. He claimed that the very nature of capitalism means that periods of economic stability set the stage for crises. As things go well, borrowers pay their debts on time. Lenders then start assuming bigger risks int he hope of making more money. "Succes breeds a disregard of the possibility of failure". Progressively more risky borrowers join the party (call them subprime mortgages, for example). Things continue to evolve with higher leverage, less attention to risk management, higher competitive pressure for lenders to assume more risk...Until one day a sudden fear starts to spread: people start to fail to pay their debts, asset prices start going down which forces more sales and a negative spiral in asset prices kicks in (sounds familiar with current real state bubbles). That marks the moment of spill over from a financial crisis into a real economy crisis and near collapse of the financial system.

Read his book, "Stabilizing an unstable economy" highly recommended