ABSTRACT
This chapter presents the theoretical framework that will be used in the entire book to analyze the causes, unraveling, and consequences of the Great Recession. Following the crash, the work of Hyman Minsky gained some attention among academics and the popular press. They have especially acknowledged the relevance of the Financial Instability Hypothesis (FIH) to explain what happened in the late 2000s. However, as one may expect, most of what has been retained from the FIH is a narrow, and rather simplistic, narrative based on bubble, greed, and irrationality that is best illustrated by Kindleberger's Manias, Panics, and Crashes. If that was the only thing that Minsky had to offer, his contribution to economic theory would be marginal given that many authors have made those claims long before him. The point of this chapter is to provide a more detailed presentation of the Minskian framework from its hypotheses, to its logic, and, finally, to its policy implications. As shown in the rest of the book, this framework helps to build an understanding of what happened over the past fifty years rather than only what happened in the past five.
