2008

The End of a Great Illusion: Credit Crunch and Liquidity Meltdown

This paper explains the global credit crunch as the outcome of one grand illusion – the illusion of liquidity that developed from a spiral of financial innovation and its effects on systemic liquidity. It examines the political-economic mechanisms that had sustained the illusion of liquidity during the boom years, and the mechanisms which contributed to its evaporation. Drawing on the scholarship of Hyman Minsky, the author identifies three pillars of the liquidity illusions and examines their role in the unraveling of the global liquidity illusion.

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