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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 27 / 42

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1/23/2015

Jamshid Damooei, PhD

27

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

According to Minsky, the financial structure of a capitalist economy becomes more and more fragile during the period of prosperity.

In short, the longer the prosperity, the more fragile the system becomes.

Financial Instability Hypothesis (FIH) has the following features:

Banks and other intermediaries strive to innovate with regard to the assets they acquire and the liabilities they market. In doing so they lure investors to buy the debt by means of sophisticated innovations

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