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Financial Instability
Financial Instability could be summed up as:
Success breads excess which leads to crisis or
Economic stability itself breads instability.
Since the credit crisis, many have looked back at the Great Moderation (prolonged period of economic growth during 1990s and 2000s) had examined how it contributed to complacency and risk-taking.
Minksy Moment
The Minsky moment refers to the point where the financial system moves from stability to instability. It is that point where over-indebted borrowers start to sell off their assets to meet other repayment demands. This causes a fall in asset prices and loss of confidence.
Financial Instability and Credit Crunch
The work of Hyman Minsky was largely ignored by main stream economics in the 1970s and 1980s. Instead there was widespread support for financial deregulation. But, the credit crisis of 2007 onwards understandably created renewed interest in his work. The model seemed to offer considerable explanation for elements of the credit crisis.
