Read Hyman Minsky to Sharpen Your Understanding Of Booms & Busts
My friend James Montier would probably agree that time spent reading Minsky or Kindleberger would save investors from making foolish mistakes.
Background (Via Wikipedia)
Hyman Minsky was an American economist and professor of economics at Washington University in St. Louis. His research attempted to provide an understanding and explanation of the characteristics of financial crises. Minsky was sometimes described as a post-Keynesian economist, because, in the Keynesian tradition, he supported some government intervention in financial markets and opposed some of the popular deregulation policies in the 1980s, and argued against the accumulation of debt. His research, nevertheless, endeared him to Wall Street.
Excerpt Of Minsky’s Contributions (Via Wikipedia)
Dr. Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. Minsky claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts.
Minsky Stabilizing an Unstable Economy Complete
Macroeconomics Meets Hyman P. Minsky the Financial Theory of Investment
July 2nd, 2009 at 5:18 pm
I would certainly agree. Minsky should be required reading for investors. Excellent job of posting these great links. Keep well James