Minsky. Daniel H. Neilson

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СКАЧАТЬ see how financial traumas grow from the quiescent periods that precede them; but having recognized this fact, one can quickly spot the seeds of crisis all around. This is not the same, however, as being able to offer a precise prediction. For these reasons I have tried, in what follows, to avoid predicting the next crisis; we shall have to wait and see.

      The last crisis stands out in memory; indeed, a decade on, the debates and headlines that occupy the world’s attention today can still be traced along quite short paths back to the events of 2008. The subprime crisis, or the global financial crisis of 2008, was a major disruption: from a tipping point in the market for US real estate, it exposed the fragile arrangements in a global market-based credit system, bringing about the failures of major financial institutions, sparking a crisis in sovereign debt, and requiring coordinated intervention by central banks around the world. The consequences for employment, public finances, investment, not to mention politics and even, arguably, the course of history, have been and continue to be great. At the same time there is a risk of driving in the rear-view mirror, of preparing for the last war. Financial crises have a strong family resemblance, and at the same time each is unique; Minsky’s work, I argue, is more about the family resemblance than about any particular crisis, 2008 included.

I have aimed, therefore, to keep 2008 as an important example, but not the focus, for most of the book. Chapter 7 takes up the subprime crisis as a context for understanding the resurgent interest in Minsky’s work. Examples from the FCIC of the US Congress are included throughout the book as illustrations, in many cases quite precise ones, of Minsky’s insights. This section anticipates the discussion to follow with a short look at the events of the 2008 crisis. (I have tried to make this narrative both complete and efficient; as a consequence I fear it is slightly technical for an introductory section. To the interested reader for whom some of the financial vocabulary may be daunting, I suggest that you feel free to skip or skim this section. Its value might lie mostly in that it summarizes the events of the 2008 crisis from a viewpoint theoretically consistent with the other chapters of this book, and so I also suggest that you come back to it at the end.)

      One of the signal developments in the world of finance in the decades leading up to 2008 was a shift from a bank-credit-based to a market-based financial system; borrowing and lending that had been conducted via customer relationships at commercial banks came, more and more, to be conducted instead via the exchange of securities. The year 2008 can be understood as the first major crisis of this new, market-based financial system. These developments in banking were driven in particular by the rise of money-market mutual funds (1980e). Money funds emerged beginning in the late 1960s, and their usage grew as a response to the demand for high interest rates as compensation for rising price levels in the high-inflation years that followed. They sought to provide the benefits of bank deposits – stable value and ready convertibility into cash – while paying an interest rate above the Depression-era Regulation Q caps, upper limits on interest rates set by the Federal Reserve, that bound commercial banks. They operated as mutual funds, issuing shares and using the proceeds to purchase securities. Though money funds were not insured, as commercial bank deposits were by the Federal Deposit Insurance Corporation (FDIC), they succeeded in displacing the bank credit that had dominated.

      As depositors’ business moved from commercial banks to money funds, borrowers’ business moved from commercial loans to commercial paper – short-term securities issued by companies to finance their immediate cash needs. Issuers were able to place their commercial paper with money-market funds, which in their turn needed securities to hold. Bank-based credit was thus displaced by market-based credit; the normal banking transaction was now the issuance of commercial paper matched by the issuance of money-market fund shares, rather than the creation of a bank loan matched by an increase in deposits.

Viewed in the abstract, the two approaches to finance, bank-based and market-based, are not so different. In practice, however, they interacted differently with the institutional environment. One important set of institutional developments was around regulation – indeed the very fact that money funds were not bound by interest-rate ceilings was the main factor behind their growth. Another relevant regulatory shift was the 1999 repeal of the 1932 Glass–Steagall Act, which had kept commercial banks out of securities-based banking. The expansion of market-based credit went along with a general decline in the regulation of the financial system; financial markets were left to their own devices.

      A second set of institutional changes relates to the financial usages that supported securities-based banking. One of the institutional advantages of market-based credit over bank loans was that securities could readily trade in secondary markets: the initial purchaser of newly issued commercial paper was not obligated to hold it to maturity, as was the case for bank loans, largely unmarketable. Such markets were made by securities dealers, who bought and sold such securities. The existence of these markets seemed an unmitigated good: knowing that the position could readily be liquidated, potential lenders would enter the market more willingly, and borrowers would benefit from more competitive rates and smoother issuance. Securities dealers thus became more central to the flows of credit; their business was in turn supported by the growth in repurchase agreement (repo) markets. A sale-and-repurchase agreement is a short-term loan of cash, secured by a financial asset: the owner of the asset can post it, overnight or for a very short term, as collateral for a loan of cash. The repo market facilitated the short-term holdings needed by securities dealers.

      As money-market funds seemed to improve on bank deposits, the market-based credit system seemed to improve on the bank-based system, and it grew accordingly. An innovation that would prove critical in 2008 was securitization: a group of financial assets was pooled, the cash flows generated by them assigned according to a structured issuance of securities. It is market-based banking taken to its logical conclusion – a purely financial entity that fit easily into the infrastructure and usages of market-based finance. There was much to argue in favor: as Minsky had said (two decades earlier), it “makes the steps in financing explicit. It allows separate organizations to carry out the steps that were previously folded into banks and other financial intermediaries. Securitization will obviously impose a dynamics to financing that may well lead to a greater decentralization and variety of forms of financing than now exists” (1990b, 65).

In a way, this is just banking: instead of a commercial bank funding a portfolio of loans with deposits, it is an investment vehicle funding a portfolio of bonds with securities. One innovation that seemed even to improve upon institution-based banking was that a single securitization vehicle could issue a range of liabilities with different levels of debt seniority. This was the most alchemical of achievements of the market-based credit system, for it meant that a set of even doubtful assets could be the basis for the issuance of high-quality, money-like securities, perfect for the portfolios of money-market investors seeking an alternative to cash. The most junior tranches of securitizations could even serve as the basis for a second-order securitization, thus the collateralized debt obligation (CDO).

      Securitization reached its high-water mark in the US real-estate market; the steady origination of mortgages was a supply that could meet the steady demand for mortgage-backed securities. The availability of such wholesale funding supported the issuance of large amounts of new mortgage financing, which in turn supported a steady rise in home prices. The appreciation of real-estate prices meant that borrowers could readily sell into a rising market in the event of payment difficulties. As a result the increased lending seemed sustainable, and moreover seemed to support the wholesale financial innovations underlying the expansion of retail lending. In the final phase of the housing boom, demand for mortgage securitizations was great enough to impel a relaxation of lending standards: confident that any level of issuance would be absorbed, mortgage originators sought to lend to anyone and everyone, even those “subprime” borrowers with little or dubious credit history.

      A final innovation that accompanied and enabled the rise in securitized finance was the use of credit-default swaps (CDS), which can be understood as insurance policies on market-based credit instruments. A CDS contract is written between a buyer and a seller, with reference СКАЧАТЬ