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Unknown to most people, economist Hyman Minsky spent the latter part of his life feuding with dyed-in-the-wool efficient market theorists as he argued that markets were open to periods of speculation that could end in crises. An interesting article appeared in Saturday's Wall Street Journal that explains how many traders and analysts are beginning to think Minsky wasn't so crazy after all.
In fact, Wall Street has even began to use the term "Minsky moment" to describe times when over-leveraged investors are forced to sell their good investments to cover losses on borrowed money.
It seems that the market's action in the last few weeks could be considered a near Minsky moment as quant hedge funds were forced to cover positions, several hedge funds blew up due to leveraged subprime exposure, and so on. In fact, a fund manager interviewed in the Wall Street Journal piece believes we are "bordering a Minsky meltdown."
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