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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 26 / 42

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1/23/2015

Jamshid Damooei, PhD

26

Accumulation of Debts and Emergence of Economic Crisis…..Continued

There are three types of borrowers:

Hedge borrowers who can meet all debt payments from their cash flows.

Speculative borrowers who can meet interest payments but must constantly roll over their debt to be able to repay the original loan.

The third group of borrowers Minsky labeled Ponzi borrowers; they can repay neither the interest nor the original loan. These borrowers rely on the appreciation of the value of their assets to refinance their debt

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