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  Working Paper No. 549

  Excess Capital and Liquidity Management

  These notes present a new approach to corporate finance, one in which financing is not determined by prospective income streams but by financing opportunities, liquidity considerations, and prospective capital gains. This approach substantially modifies the traditional view of high interest rates as a discouragement to speculation; the Keynesian and Post-Keynesian theory of liquidity preference as […]
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  Policy Notes No. 6

  Time to Bail Out: Alternatives to the Bush-Paulson Plan

  While serving as chairman of the Federal Reserve Board, Alan Greenspan advocated unsupervised securitization, subprime lending, option ARMs, credit-default swaps, and all manner of financial alchemy in the belief that markets “work” to reduce and spread risk, and to allocate it to those best able to assess and bear it—in his view, markets would stabilize […]
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  Working Paper No. 548

  On Democratizing Financial Turmoil

  The paper uses Minsky’s financial instability hypothesis as an analytical framework for understanding the subprime mortgage crisis and for introducing adequate reforms to restore economic stability. We argue that the subprime crisis has structural origins that extend far beyond the housing and financial markets. We further argue that rising inequality since the 1980s formed the […]
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  Policy Notes No. 5

  Will the Paulson Bailout Produce the Basis for Another Minsky Moment?

  As the House Committee on Financial Services meets to hear the expert testimony of witnesses concerning the regulation of the financial system, the measures that have been introduced to support the system are laying the groundwork for a new domestic financial architecture. Hyman Minsky suggests that the basic principle behind any reformulation of the regulatory […]
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  Working Paper No. 547

  Minsky and Economic Policy

  Recently, national newspapers all over the world have suggested that we should reread John Maynard Keynes, and that Hyman P. Minsky provides a valuable framework for understanding the world in which we live. While rereading Keynes and discovering Minsky are noble goals, one should also remember the mistakes that were made in the past. The […]
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  Working Paper No. 546

  Do the Innovations in a Monetary VAR Have Finite Variances?

  Since Christopher Sims’s “Macroeconomics and Reality” (1980), macroeconomists have used structural VARs, or vector autoregressions, for policy analysis. Constructing the impulse-response functions and variance decompositions that are central to this literature requires factoring the variance-covariance matrix of innovations from the VAR. This paper presents evidence consistent with the hypothesis that at least some elements of […]
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  Asia’s revenge

  October 8, 2008. Copyright 2008 The Financial Times Limited. “FT” and “Financial Times” are trademarks of the Financial Times. “Things that can’t go on forever, don’t.” —Herbert Stein, former chairman of the US presidential Council of Economic Advisers What confronts the world can be seen as the latest in a succession of financial crises that […]
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  Public Policy Brief Highlight No. 96

  The Commodities Market Bubble

  In a new public policy brief, Senior Scholar L. Randall Wray shows how money manager capitalism—characterized by highly leveraged funds seeking maximum returns in an environment that systematically underprices risk—has destabilized one asset class after another, with commodities being simply the latest. Policymakers must fundamentally change the structure of our economic system and reduce the […]
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  Policy Notes No. 4

  A Simple Proposal to Resolve the Disruption of Counterparty Risk in Short-Term Credit Markets

  The impaired risk assessment caused by the collapse of mortgage-backed securities is the major problem threatening the stability of the American financial system, yet it is not clear that removing these assets from institutional balance sheets, as the government has proposed, will make it easier to assess counterparty risk in short-term credit markets. Resolving the […]
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  Report No. 4

  Report October 2008

  Recent experience has bolstered the view that asset prices must come under the central bank’s purview in order for the economy to retain some semblance of stability. However, in a new Public Policy Brief, Pedro Nicolaci da Costa argues that attitude changes among regulators will be even more important than shifts in mandate in ensuring […]
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  Public Policy Brief No. 96

  The Commodities Market Bubble

  Money manager capitalism—characterized by highly leveraged funds seeking maximum returns in an environment that systematically underprices risk—has resulted in a series of boom-and-bust cycles in equities, real estate, and commodities. Because subsequent cycles have been increasingly damaging to the broader economy, we are now at the point where we are experiencing the most severe financial […]
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  Working Paper No. 545

  Promoting Equality Through an Employment of Last Resort Policy

  Unemployment has far-reaching effects, all leading to an inequitable distribution of well-being. To put an economy on an equitable growth path, economic development must be based on social efficiency, equity—and job creation. Many economists, however, assume that unemployment tends toward a natural rate below which it cannot go without creating inflation. This paper considers a […]