Financialization and crisis: A perspective on the 21st century through the financial instability hypothesis

This thesis investigates the structural effects of financialization on modern economies and explores the systemic nature of financial crises through the lens of Hyman P. Minsky's Financial Instability Hypothesis. Since the last quarter of the 20th century, the financialization process has accelerated, characterized by the expansion of the financial sector detached from the real economy. This expansion has fueled economic fragility through speculative capital flows, increasing household debt, and rising income inequality. The study thoroughly analyzes how financialization contributes to the formation of crises, particularly focusing on the structural damages caused by the 2008 Global Financial Crisis and the COVID 19 pandemic, using the Financial Instability Hypothesis as an analytical framework. Minsky's hypothesis asserts that during economic upturns, financial actors tend to engage in riskier behaviors, which eventually institutionalize fragility through speculative and Ponzi financing structures. Within this context, the relevance of the hypothesis to contemporary financial structures is assessed. The thesis further evaluates the role of Keynesian fiscal policies, industrial strategies, and financial regulations in mitigating financial instability. Additionally, the effects of financial globalization in developing economies, the liberalization of capital flows, rising inequality, and the evolving role of central banks are discussed. The principal aim of this study is to systematically examine the mechanisms through which financialization influences crisis dynamics, thereby addressing theoretical gaps in the current literature and offering alternative policy recommendations. The findings contribute not only to theoretical discourse but also provide applicable insights for policy makers aiming to design more resilient financial systems.