Template:M intro banking Minsky moment

Hyman Minsky’s “Minsky moment” comes at the end of a credit cycle which he sees as having five stages:

• Displacement: invention, war, change in economic policy:
• Boom: the invisible hand seeks and and exploits whatever opportunities are thrown up by the displacement (even bad displacements create opportunities: wars benefit the arms industry and the medical dressings industry)
• Euphoria: everything seems amazing, the world is picked out in vivid, sparkling light, awash with profit possibilities, and lending standards start to slide.
• Profit-taking: Smart people call the top of the market and sell
• Panic: Usually triggered by something dramatic or symbolic: the sudden failure of a hedge fund, or some such, everyone stampedes for the exits.

This still feels a little bit “survivor bias-y” — a story we construct in hindsight and select evidence for it in hindsight.

Cycles, like waves, are not discrete, but operate on a bigger, wider ocean with all kinds of cross-currents and perturbations making the market behave in unpredictable ways.