The Crisis of Invented Money: Liquidity Illusion and the Global Credit Meltdown
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Anastasia Nesvetailova
In this Article I argue that the global credit crunch of 2007-2009 is the result of the multifaceted phenomenon of liquidity illusion. Fundamentally, the problem of liquidity illusion derives from the hollow conceptualization of "liquidity" in mainstream financial theory and practice. Represented most recently by the market completion theory, this paradigm has led to a widespread misunderstanding of the dynamics of the relationship between the process of financial innovation and the liquidity of the financial system. In order to unpack the political economy of liquidity illusion from other factors in the leadup to the global credit crunch, this Article builds upon Hyman Minsky’s vision of financial innovation and crisis. Challenging mainstream views of the liquidity-enhancing process of financial innovation, I identify the three pillars of liquidity illusion in the recent 2002-2007 bout of securitization: a) the paradigm of self-regulating finance; b) the role of Ponzi finance; and c) the function of private authority, namely credit rating agencies.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Introduction
- Political Economy of Supplying Money to a Growing Economy: Monetary Regimes and the Search for an Anchor to Stabilize the Value of Money
- Alternative Approaches to Money
- The Meanings of Money: A Sociological Perspective
- Central Bank Transparency: Causes, Consequences and Updates
- The Crisis of Invented Money: Liquidity Illusion and the Global Credit Meltdown
- International Financial Centers: The British-Empire, City-States and Commercially Oriented Politics
- The Jurisprudence of Global Money
- Credit Cooperatives in Early Israeli Statehood: Financial Institutions and Social Transformation
- Applied Legal History: Demystifying the Doctrine of Odious Debts
- Inventing Industrial Statistics
- The Moneylender as Magistrate: Nicholas Biddle and the Ideological Origins of Central Banking in the United States
- Coin Reconsidered: The Political Alchemy of Commodity Money
- Elements of Negotiability in Jewish Law in Medieval Christian Spain
- The Role of Lawyers in Producing the Rule of Law: Some Critical Reflections
Articles in the same Issue
- Article
- Introduction
- Political Economy of Supplying Money to a Growing Economy: Monetary Regimes and the Search for an Anchor to Stabilize the Value of Money
- Alternative Approaches to Money
- The Meanings of Money: A Sociological Perspective
- Central Bank Transparency: Causes, Consequences and Updates
- The Crisis of Invented Money: Liquidity Illusion and the Global Credit Meltdown
- International Financial Centers: The British-Empire, City-States and Commercially Oriented Politics
- The Jurisprudence of Global Money
- Credit Cooperatives in Early Israeli Statehood: Financial Institutions and Social Transformation
- Applied Legal History: Demystifying the Doctrine of Odious Debts
- Inventing Industrial Statistics
- The Moneylender as Magistrate: Nicholas Biddle and the Ideological Origins of Central Banking in the United States
- Coin Reconsidered: The Political Alchemy of Commodity Money
- Elements of Negotiability in Jewish Law in Medieval Christian Spain
- The Role of Lawyers in Producing the Rule of Law: Some Critical Reflections
