The Intellectual Origins of the Global Financial Crisis

12. Managed Money, the “Great Recession,” and Beyond

This chapter expands on the ideas of the late Levy Institute scholar, Hyman Minsky, to show how the financial crisis is attributed to flaws in the constitution of the current financial structure. Papadimitriou traces the emergence of "money manager capitalism," which characterizes our current economy with its higher level of uncertainty due to the dominant role played by mutual funds, high leverage and pension funds hungry for higher returns that systematically underprice risk. This system was prone to a "Minsky moment," the rapid debt deflation that we witnessed in 2008. After highlighting the history and shortcoming of this iteration of capitalism, the author concludes that austerity measures are the wrong medicine for the current situation. What is needed is a return to Keynesianism in the form of reinvigorating fiscal expansion to combat anemic growth and high unemployment.