Tuesday, July 06, 2010

Why corporations are sitting on so much cash

[Hyman] Minsky's view was that in normal times, firms borrow money to finance investment. In boom times, they borrow money to finance Ponzi schemes. When the Ponzi schemes crash, they rely on internal finance. As I understand the Minsky cycle, for firms to save rather than spend is exactly what one would expect right now, during the "hedge finance" phase.--Arnold Kling

Earlier post here.

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