That is we endeavor to conform with the behavior of

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Unformatted text preview: st of the world which is perhaps better informed. That is, we endeavor to conform with the behavior of the majority or the average.” Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 5/ 35 The Financial Instability Hypothesis (Minsky, 1977) Minsky identified three (3) types of finance: 1 Hedge Finance: “Cash flows from operations are expected to be large enough to meet the payment commitments on debts.” 2 Speculative Finance: “Cash flows from operations are not expected to be large enough to meet the payment commitments on debts.” 3 Ponzi Finance: “Cash payment commitments on debt are met by increasing the about of debt outstanding.” Fixed Income VII: R. J. Hawkins Econ 136: Financial Economics 9/ 35 The Financial Instability Hypothesis (Minsky, 1977) Minsky’s interpretation of the business cycle: Banks lend cautiously given a recent crisis. Lending is expanded: loans are good. Validation leads to expanded underwriting standards. More people have access to cre...
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This note was uploaded on 01/23/2014 for the course ECON 136 taught by Professor Szeidl during the Fall '08 term at University of California, Berkeley.

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