Based On Financial Instability Hypothesis On The Analysis Of The Cause Of The Current Financial Crisis And Its Evolution

Since the financial debt crisis broke out frequently in recent years, and the orthodox economics can not explain them convincingly, people begin to focus on Capitalist System. People have paid more attention to the Financial Instability Hypothesis (FIH) theory of Hyman Minsky who said that solvency crises would be mainstream in modern society about twenty years ago.FIH shows that the instability of capitalist economy is endogenous, because the institution of capitalist production, such as the nature of profit seeking and the instability of market action for investing and financing, determine the fragility of financial system. To some extent, the intervention and rescue of the government and the central bank may achieve a semblance of stability in short run. However, they actually breed a potential more severe crisis in long run. Only the promoting financial and regulatory system can obtain a financial stability and reduce the frequency and severity of financial crisis.This paper studies from the source of FIH theory, summarizes its main idea and structure, interprets its financial regime through relative mathematical analysis, and concludes a simple model of financial crisis theory. Using the model and combining with open economic data, the paper analysis gradually the process of the subprime crisis: recovery, boom, manic and breakup, and thus empirically tests the idea of FIH. Then, the paper analyzes the conduit system of subprime crisis evolved into global financial crisis with the concepts of shadow banking system, and reviews the American rescue measure by Minsky’s stability policy. At last, it supposes some policy advice to Chinese authorities, connecting with the current situation in China and Minsky’s idea.