By the end of the 20th century, the financial system that Minsky had warned about had materialized, complete with speculative borrowers, Ponzi borrowers, and precious few of the conservative borrowers who were the bedrock of a truly stable economy. Over decades, we really had forgotten the meaning of risk. When storied financial firms started to fall, sending shockwaves through the “real” economy, his predictions started to look a lot like a road map.
This was a fascinating article from the Boston Globe about the economist Minsky and his theories on capitalism. Too bad he has a Russian name because it is too easy to associate that with the failed Soviet Union and communism, but far from it, Minsky, as I understand it, believed in capitalism but feared the financial industry. He warned about what would happen if the financial industry went unregulated and actually detailed what happened to us over the last few years. He actually warned about exactly what happened to the US and other countries as they depended more and more on leverage and increased their debt. Our financial system evolved into a giant Ponzi scheme that put Mr. Madoff to shame. Free and unbridled capitalism seems to be self destructive and the purists who believe that the free market can solve anything are just plain wrong. Anyone who still believes that after the collapse we have suffered is just living in denial. The trick is finding the balance between competition and regulation. Too much of either is dangerous. The link above takes you to page 4 of the piece in the Boston Globe because key points are made there that apply to our situation today, but I recommend after reading it that you jump back to page 1 and read it all the way through if you have time.