Introduction

This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book analyses the logic of applying the American Post-Keynesian economist Hyman Minsky's Financial Instability Hypothesis (FIH) to the financial crisis of 2007–08. It considers some theories that relate to financial crisis, including Monetarism, the Efficient Market Hypothesis (EMH), work from the Social Studies of Finance on financial performativity and Behavioural Finance, contrasting them with the FIH. The book shows how the abstraction of "risk" which conditions trade in financial instruments such as derivatives and asset backed securities can be conceptualised as "liquidity" through a historicizing critique of theories of financial crisis. It outlines some epistemological issues in the social sciences associated with "explaining" financial crisis. The book also analyses the effects of the Hybrid Adjustable Rate Mortgage on liquidity in the US housing market in the lead-up to the crisis of 2007–08. It argues that liquidity dynamics were immanent to mortgage innovation.