This is a theoretical article exploring the relationship between financial fragility, derivative trading, and financial crisis. It synthesizes the work of Hyman Minsky (1977, 1985), Jan Toporowski (2001), and Dick Bryan and Michael Rafferty (2006). The decade immediately after 1971 is presented as a key period with key events that shaped a Wall Street revolution that now drives world capitalism. Balance sheet computations of expected profitability emerge as the main driver of a contemporary capitalism that is inherently more competitive than before. Debt, credit, and liquidity, therefore, play crucial parts in a world system where banks and corporations have been joined by new rentier institutions in riskier speculative business activities that now characterize the system. The conclusions are largely Keynesian “. . . when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
Berle, A., and G.C. Means.2007. The modern corporation & private property. New Brunswick and London : Transaction Publishers.
2.
BIS Occasional Papers: 2000: # 203; 2003: # 217; 2003: # 224. Washington, DC: International Monetary Fund.
3.
BIS.2005. Triennial central bank survey. Basel, Switzerland: Bank for International Settlements.
4.
Black, F., and M. Scholes.1973. The pricing of options and corporate liabilities. Journal of Political Economy81: 637-54.
5.
Bodie, Z., and R. Merton.2008. Financial economics. Upper Saddle River, NJ: Pearson-Prentice Hall.
6.
Brenner, R.2003. The boom and the bubble. London and New York: Verso.
7.
Bryan, D., and M. Rafferty.2006. Capitalism with derivatives. New York: Palgrave Macmillan.
8.
---. 2003. Financial derivatives and value theory: Towards a theory of capitalist money. Working paper, School of Economics and Finance, University of Western Sydney.
9.
D’Arista, J.2007-2008. U.S. debt and global imbalances. International Journal of Political Economy36(4): 12-35.
10.
Davidson, P.2002. Financial markets, money and the real world. Cheltenham, UK: Edward Elgar.
11.
Deleplace, G., and E. Nell, eds. 1996. Money in motion: The post Keynesian circulation approaches. New York: Jerome Levy Institute.
12.
Dymski, G.2008. Is financial governance feasible in the neoliberal era? Reflections on the post-war evolution of financial risk. Sacramento, CA: University of California Center Sacramento .
13.
Eatwell, J., and L. Taylor.2001. Global Finance at Risk. New York: The New Press.
14.
The Economist.2008. March 22-28.
15.
Fazzari, S., and D. Papadimtriou , eds. 1992. Financial conditions and macroeconomic performance: Essays in honor of Hyman P. Minsky. Armonk, NY: M.E. Sharpe, Inc.
16.
Fitch Ratings Survey.2007. June.
17.
The Financial Times.2007. July 17.
18.
Germain, R.1997. The international organization of credit: States and global finance in the world economy. Cambridge: Cambridge University Press.
19.
Glyn, A.2006. Capitalism unleashed. Oxford : Oxford University Press.
20.
Harvey, D.2007. A brief history of neoliberalism. Oxford: Oxford University Press.
Kindleberger, C.P.1989. Manias, panics and crashes. New York : Basic Books, Inc.
23.
Kregel, J.2008. Minsky’s cushions of safety: Systemic risk and the crisis in the U.S. subprime mortgage market. Levy Economics Institute, Public Policy Briefing Paper, Jan.
24.
Langley, P.2002. World financial orders: An historical international political economy. London and New York: Routledge.
25.
Mehrling, P.2001. Minsky, modern finance and the case of long term capital . In Financial Keynesianism and market instability , ed. R. Bellofiore and P. Ferri.Cheltenham, UK: Edward Elgar.
26.
---. 2005. Fisher Black and the revolutionary idea of finance. Hoboken, NJ: John Wiley & Sons, Inc .
27.
Minsky, H.1977. A theory of systemic fragility. In Institutions and markets in a fragile environment, ed. E. I. Altman and A. W. Samietz.New York: John Wiley.
28.
---. 1986. Stabilizing an unstable economy. New Haven and London: Yale University Press.
29.
---. 1982. Can it happen again? Essays on instability and finance . Armonk, NY: M.E. Sharpe, Inc .
30.
Morris, C.R.2008. The trillion dollar meltdown. New York : Public Affairs.
Shaikh, A.2005. In Neoliberalism: A critical reader, ed. A. Saad-Filho and D. Johnston.London: Pluto Press.
36.
Simons, H.1948. Economic policy for a free society. Chicago: University of Chicago Press.
37.
Strange, S. [ 1986]1997. Casino capitalism. London: Blackwell; Manchester: Manchester University Press.
38.
---. 1998. Mad money: When markets outgrow governments. Ann Arbor: The University of Michigan Press.
39.
Toporowski, J.2001. Financial derivatives, liquidity preference, competition and financial inflation. In Money, finance and capitalist development , ed. A. Phillip and M. Sawyer.Cheltenham, UK: Edward Elgar.
40.
Wray, C.R.2008. Financial markets meltdown. The Levy Institute of Bard College, Public Policy Brief No. 94.
