Minsky Moment

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Definition of 'Minsky Moment'

A Minsky moment is a sudden and unexpected collapse of asset values. It is named after Hyman Minsky, an economist who studied financial instability. Minsky argued that financial instability is a normal part of the business cycle, and that it is caused by a combination of factors, including excessive risk-taking by banks and investors, and a lack of regulation.

A Minsky moment can occur when asset prices become too high, and investors become too confident. This can lead to a bubble, which is a period of rapid price increases. When the bubble bursts, asset prices can fall sharply, and investors can lose a lot of money.

Minsky moments can have a significant impact on the economy. They can cause a recession, and they can also lead to financial crises. The 2008 financial crisis is a good example of a Minsky moment. In the years leading up to the crisis, banks and investors took on too much risk. This led to a housing bubble, which eventually burst. The resulting financial crisis had a devastating impact on the economy.

Minsky moments are a reminder that financial instability is a real threat. It is important for regulators to be aware of the risks, and to take steps to mitigate them.

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