The demise of the US investment banking from a Minskian perspective

Abstract

This research analyses the causes behind the de-facto demise of the US firms dedicating their activity exclusively to securities business, in the wake of the financial crisis of 2008, focusing on the firms´ risk mismanagement and bad lending practices, that increased fragility and risk exposures in the US securities sector. These practices emerged when leading firms became gradually convinced of the goodness of financial instruments of their own design, as they engaged in proprietary trading activities and trading of financial products with residual liquidity, increasingly shifting their use from hedge to speculative purposes. In this way, leading financial operators able to take unrestricted risk and highly leveraged positions in unregulated markets are the cause behind volatility in asset prices, and they are ultimately responsible of the cyclical boom and bust dynamics of the market-based economy