Global financial crisis: Causes and consequences

Hyman Minsky's (1982) Keynesian explorations on the mechanisms of financial markets revolved around the question: can the 1930s collapse happen again? Minsky argued that it does not need to happen again. True, by the early 1980s a number of institutional changes and financial innovations had reversed the legacy of the reforms in the 1930s and 1940s and war finance. Yet, many qualitative differences remained and still do today in 2009. Governments are much bigger, implying a much greater deficit once a downturn occurs. In times of deficits, large government debt increases rapidly. Central banks are primed to intervene quickly as the lender-of-last-resort. Markets are not allowed to fall free; although they may nonetheless do so.