The Return Of The “Minsky Moment”

“The emergence of money manager capitalism means that the financing of the capital development of the economy has taken a back seat to the quest for short-run total returns.” – Circa 1992.

Wall Street has forgotten the great financial crisis.

A sense of relief has settled firmly on the legendary asphalt artery between Trinity and the FDR Drive.

Looks like they got away with another one.

Nobody else will, so let me say it (at least mean it): Thank you, Mr. & Mrs. Taxpayer.

Again. Sincerely. Thank you. Now, let’s get on with blowing your wealth out of the water again, just as portfolios have made it back to even. Older, a bit pudgier, more forehead than before.

Oh wait, that’s me.

As the Great Recession gets pulled into the mist, obfuscated by the misleading but comforting math of market return averages and a bull that has rarely stumbled, Wall Street is more defiant than ever to broadcast:

“See? We told you so! The markets always rebound in time!”

Time. That precious commodity you’d pay more than you’re worth, for.

The concept of time holds little relevance to Wall Street. After all, its life expectancy may be considered perpetual. Eight years, seventeen years, whatever time it takes to recover from a poor cycle is irrelevant and may be celebrated. A human life is different. We die. We can’t be so flippant over lost time.

You know all too well about how painful it is to recover from losses.

Understandable why it makes sense that Main Street, or why Americans vividly recall the Great Recession. They’re older and unless in the top 1%, not much richer. They’re also skeptical of the so-called economic recovery as inflation-adjusted median incomes have remained stagnant for close to a decade. Read: The Illusion of Declining Debt-To-Income Ratios.

Sentier Research an organization that focuses on income and demographics publishes monthly updates on household incomes. Their numbers tend to be direr than Lance Roberts’ on the topic. According to Sentier, May 2017’s median household income is roughly 1% above the median of $58,711 set back in January 2000.

The reason I rehash painful memories and current reality, is to conjure a name we haven’t heard since 2007. It’s an attempt to ground myself. Ground you, too.

Meanwhile in the fantasy-land horror ride otherwise known as a central banker’s noggin…

It feels opportune for me; as I write, the head of the Federal Reserve Janet Yellen at a recent event in London, espoused just what the media wanted to hear. Get this: She’s confident that a run on the banking system won’t happen “as long as she lives.” Read: Yes, Ms. Yellen…. There Will Be Another Financial Crisis.

You see, Ms. Yellen’s frame of reference, that of Neoclassical economic texts studied within hallowed walls – where financial crisis, or any shock, with the word “GREAT” attached to it like Depression or Recession, are dismissed as anomalies. Her accepted theories explain away the power of the shadow banking system to take the so-called regulated financial system down with it.

In her naïve corner of economic study, alleged exogenous events are minimized as episodes that may occur, give or take, every 4,000 years. Unfortunately, the result is an unwarranted sense of complacency that ironically, leads to instability the rest of society ultimately pays for.

How else can a Fed chair whose words are taken so seriously expound in public that another financial crisis was not likely in our lifetime? In my lifetime, we’ve experienced multiple so-called outlier events. Unless she’s planning to check out soon, I’m not sure how confident Yellen can be in her statement.

One fact is obvious; the Fed has put to bed that whole financial crisis thing, too.

A reason that justifies the resurrection of this economist’s theories.