The “Anatomy” of a Financial Crisis

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Essay #: 054539
Total text length is 5,788 characters (approximately 4.0 pages).

Excerpts from the Paper

The beginning:
The “Anatomy” of a Financial Crisis
According to Kindleberger, Hyman Minsky’s model is the fundamental development in understanding the financial crises in the United States, Great Britain, and other market economies (Kindleberger 25). Emphasizing the concept of pro-cyclical changes in the supply of credit, the model asserts credit increases when “investors become more optimistic about the future and they revised upward their estimates of the profitability of a wide range of investments…[and] become more eager to borrow” (Kindleberger 25). During this time, lenders become more willing to lend because of more lenient risk assessments on individual investments, however, loan losses subsequently result and lenders become much more cautious as...
The end:
.....e of the sharp decline in asset prices that causes the value of their assets to decline below the value of the amount borrowed to buy those same assets (Kindleberger 32). As the decline in price continues, the race out of long term financial securities causes a panic which fuels itself until prices have declined so low that investors start to buy less liquid assets, or a lender convinces investors that money will be available in the amounts needed to meet the demand for cash causing security prices to no longer decline (Kindleberger 33). Eventually confidence is restored and the cycle will restart again with another bubble.
Works Cited
Kindleberger, Charles P. Manias, Panics, and Crashes.
5th
ed
.
New York: John Wiley & Sons Inc., 2005.