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Dialectics of Liquidity Crisis : An Interpretation of Explanations of the Financial Crisis of 2007-08
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This book analyses the logic of applying the American Post-Keynesian economist Hyman Minsky’s Financial Instability Hypothesis (FIH) to the financial crisis of 2007-08. In conducting a historicizing critique of Minsky’s work this book seeks to illustrate how the abstraction of financial "risk" which conditions trade in financial instruments such as derivatives and asset backed securities can be conceptualised as "liquidity". The book illustrates the continuing relevance of Minsky’s theory of liquidity crisis as "immanent" (infused in and about to happen to) the products and trading practices of modern finance and the crisis of 2007-08 but not as explanatory in and of itself.
In the aftermath of the crisis there has been a quick turn to rather formulaic critiques of the financial system. Jefferis argues that most theories of financial crisis, including Minsky’s own, only describe events, but don’t actually go on to explain them. It surveys various theories of financial crisis that have been developed to describe the post-WW2 US financial system contrasting them with Minsky’s work to illustrate different dimensions of the US financial system. The book argues that uncritical adoption of any one of these theories to explain the crisis of 2007-08 will pose an "ill fit", historically speaking. However, the gap here between the abstractions of theory and the historically specific processes and instruments of particular financial crisis, which a contrasting analysis of different theories of financial crisis reveals, helps to express the contradictions in the conjuncture that actually enable interpretation of the causes of particular financial crisis, including the crisis of 2007-08.
Seeking to contribute to debates over the causes of the financial crisis of 2007-08 by blending a discussion of historicizing philosophy, economic theory and contemporary financial banking and trading practices this work will be of great interest to scholars of international political economy, heterodox economics and social theory.