Stability breeds leverage, and leverage eventually forces a sudden collapse in asset prices.
Minsky's financial-instability hypothesis went largely unread until 2007, when the phrase entered common use; McCulley coined the term in 1998. Minsky's sequence, from hedge finance to speculative to Ponzi, describes the run-up to 2008 closely.
In practice
- A firm that has not had a bad year in a decade borrows against the record, and the borrowing is what makes the next bad year fatal.
- A team with a long green dashboard reduces its testing, and the reduction is invisible until the outage.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money