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Money Manager Capitalism and the Global Financial Crisis

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  • L. Randall Wray
Abstract
This paper applies Hyman Minsky's approach to provide an analysis of the causes of the global financial crisis. Rather than finding the origins in recent developments, this paper links the crisis to the long-term transformation of the economy from a robust financial structure in the 1950s to the fragile one that existed at the beginning of this crisis in 2007. As Minsky said, "Stability is destabilizing": the relative stability of the economy in the early postwar period encouraged this transformation of the economy. Today's crisis is rooted in what he called "money manager capitalism," the current stage of capitalism dominated by highly leveraged funds seeking maximum returns in an environment that systematically under-prices risk. With little regulation or supervision of financial institutions, money managers have concocted increasingly esoteric instruments that quickly spread around the world. Those playing along are rewarded with high returns because highly leveraged funding drives up prices for the underlying assets. Since each subsequent bust wipes out only a portion of the managed money, a new boom inevitably rises. Perhaps this will prove to be the end of this stage of capitalism--the money manager phase. Of course, it is too early even to speculate on the form capitalism will take. I will only briefly outline some policy implications.

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  • L. Randall Wray, 2009. "Money Manager Capitalism and the Global Financial Crisis," Economics Working Paper Archive wp_578, Levy Economics Institute.
    • Handle: RePEc:lev:wrkpap:wp_578
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    Cited by:

    1. Ashwani Saith, 2011. "Forum 2011," Development and Change, International Institute of Social Studies, vol. 42(1), pages 70-86, January.
    2. Phil Briggs & Carly Harker & Tim Ng & Aidan Yao, 2011. "Fluctuations in the international prices of oil, dairy products, beef and lamb between 2000 and 2008: A review of market-specific demand and supply factors," Reserve Bank of New Zealand Discussion Paper Series DP2011/02, Reserve Bank of New Zealand.
    3. Hein, Eckhard, 2011. "Distribution, ‘Financialisation’ and the Financial and Economic Crisis – Implications for Post-crisis Economic Policies," MPRA Paper 31180, University Library of Munich, Germany.
    4. Amit Bhaduri, 2011. "A contribution to the theory of financial fragility and crisis," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 35(6), pages 995-1014.
    5. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    6. Costa Cabral, Nazare, 2010. "Breve guia temático e bibliográfico sobre o estudo da actual crise financeira e económica [Short thematic guide to the study of current financial and economic crisis]," MPRA Paper 20743, University Library of Munich, Germany.
    7. Eckhard Hein, 2012. "The Macroeconomics of Finance-Dominated Capitalism – and its Crisis," Books, Edward Elgar Publishing, number 14931.
    8. Thomas Palley, 2021. "Financialization revisited: the economics and political economy of the vampire squid economy," Review of Keynesian Economics, Edward Elgar Publishing, vol. 9(4), pages 461–492-4, October.
    9. Eduardo Strachman & Jos Ricardo Fucidji, 2012. "The Current Financial And Economic Crisis Empirical And Methodological Issues," Journal of Advanced Studies in Finance, ASERS Publishing, vol. 3(1), pages 95-109.
    10. Giovanna Vertova, 2014. "What’s gender got to do with the Great Recession? The Italian case," Chapters, in: Riccardo Bellofiore & Giovanna Vertova (ed.), The Great Recession and the Contradictions of Contemporary Capitalism, chapter 11, pages 189-207, Edward Elgar Publishing.
    11. Jörg Bibow, 2010. "Alternative Strategien der Budgetkonsolidierung in Österreich nach der Rezession," IMK Studies 03-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    12. Özgür Orhangazi, 2011. "“Financial” vs. “Real”: An Overview of the Contradictory Role of Finance," Research in Political Economy, in: Revitalizing Marxist Theory for Today's Capitalism, pages 121-148, Emerald Group Publishing Limited.
    13. Hugh Whittaker, 2017. "Premature financialization: a conceptual exploration," Working Papers halshs-01680406, HAL.
    14. Vijay Kumar Varadi, 2012. "An evidence of speculation in Indian commodity markets," EconStor Preprints 57430, ZBW - Leibniz Information Centre for Economics.
    15. Hein, Eckhard, & Mundt, Matthias., 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 994709323402676, International Labour Organization.
    16. Amit Bhaduri, 2010. "A Contribution to the Theory of Financial Fragility and Crisis," Economics Working Paper Archive wp_593, Levy Economics Institute.

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