The Last Refuge of Scoundrels: Keynes-Minsky Perspectives on the Uses and Abuses of the "Liquidity Defense"

Introduction: The Liquidity Defense in the Battle For Financial Reform

The role played by investment banks in creating the conditions that led to the global financial crisis that broke out in 2007 is well chronicled. These banks took excessive risks and used excessive leverage to support their immensely profitable proprietary trading; they were a major source of credit to other financial institutions, such as hedge funds, that were also major speculators; and they created, perfected and distributed the innovations in financial products at the center of the financial collapse. The proprietary character of the banks