Using Minsky‘s cushions of safety to analyze the crisis in the US subprime mortgage market

Hyman P. Minsky’s financial fragility hypothesis appears highly relevant in understanding the current crisis in the financial systems of developed countries. His most important contribution to our understanding of the logic of repeated financial crises under capitalism is that of endogenous instability, expressed in terms of a declining ‘margin’ or ‘cushion’ of safety in financial transactions and an increase in financial leverage that he called ‘layering.’ However, the paper also argues that the current crisis differs in important respects from the traditional analysis of a Minsky crisis. These differences have had a significant impact on the way the crisis has evolved.