Saturday, October 11, 2008

Is this the Minsky Moment ?

Photo Hyman Minsky

A Minsky moment is the point in a credit cycle or business cycle when investors have cash flow problems due to spiraling debt they have incurred in order to finance speculative investments. At this point, a major selloff begins due to the fact that no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in market clearing asset prices and a sharp drop in market liquidity.

The term was coined by Paul McCulley of PIMCO in 1998, to describe the Russian financial crisis,[1] and was named after economist Hyman Minsky. The Minsky moment comes after a long period of prosperity and increasing values of investments, which has encouraged increasing amounts of speculation using borrowed money.

Source Wikipedia

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