What is a Minsky moment?
A sudden market collapse following a long period of increasing speculation using borrowed money.
Where have you heard about Minsky moments?
The term’s frequently used in the financial press in discussions about past or possible future financial crashes.
What you need to know about Minsky moments.
The Minsky moment is named after Hyman Minsky, an economist who argued that capitalist markets were prone to swing between periods of stability and instability (crises).
It’s based on the idea that periods of stability in the finance markets encourage risk taking through speculative investing based on the belief that asset prices will continue to rise. When prices stop rising, over-indebted borrows realise they don’t have enough cash to meet their debt repayments and start selling off their assets. This can trigger a major sell-off and a sudden collapse in asset prices.