Hyman Minsky argued that it is not possible to design a crisis-proof financial system. Banks, after all, act as middlemen between savers, who value stability above all, and borrowers, who usually want to take risks with their loans. History suggests he was right. No growing economy has sustained a stable financial system. We should design a financial system that, in “normal” times, intelligently allocates capital to wealth-creating businesses and government projects, even if it means periodic crises. We should allow localised – manageable – banking crises to occur more often. The US has a few large, universal institutions that control ever-greater shares of financial assets. He would, instead, have opted … Continue reading Michael Pettis