This is due to the fact that at this stage the growth of investment activity is still moderate, the credit risks are still high. The companies incomes allow them to repay the interest on the loan and principal. With the growth of the economy and favorable forecasts firms are beginning to step up investment, credit risk also reduce. As a result, firms are actively moving to external financing of capital investments. However, the income may not grow continuously. After a while there comes a situation when income of many companies reduces, but their debts remain fixed. As a result, firms ability to service its debt decreases, number of defaults on loans starts to increase.avoid becoming a bankrupt firms to repay old debts are forced to take out new loans. That is, at this stage, the debts are not repaid by the incomes, and through new borrowing (Minsky this mechanism called Ponzi financing). But sooner or later the debtors applying this mode of financing debt, find themselves unable to get new loans due to higher credit risk (that reduce the desire of banks to lend). Thus, debtors are unable to repay debts, causing the debt crisis. Thus, decoupling between firms debt and assets, or the debt crisis caused by the cyclical nature of economic development: if business income and assets are cyclical and decreases in the phase of the economic downturn, the level of debt liabilities of debtors on the downward phase of the economy is not reduced, and even increase because of the interest rates. Thus, the cause of the debt crisis is the rigidity of the debt obligations to the downside.that asset securitization is also Ponzi-financing model, when the funds acquired structured securities with certain cash flows and issued under their security short-term commercial paper in several tranches, and whose income is formed as the difference between the interest rate on long-term assets and the interest rate on short-term borrowed funds. And when investment banks faced difficulty to attract new short-term obligations they were unable to pay debts.is worth noting that Minsky to diminish financial instability has proposed to constrain the banking financing of capital assets: Banking, that is, the financing of capital asset ownership and investment, is the critical destabilizing phenomenon (Minsky 1980, p. 520). He also proposed the limitation on the liability structure of business (Minsky 1980, p. 520) .our view, constraint of the banking financing of capital assets and limitation on the liability structure of business is not enough. Decoupling between debts and assets are an integral part of the economy based on debt relations. So solution of financial instability in an economy based on the debt relation is not possible. Solution to these problems is the transition from debt financing to participation in assets. Participation in assets, firstly, preventing the decoupling of debt liabilities of companies from assets, will reduce the risk of their bankruptcy and make financial system more stable. Secondly, participation in assets will prevent Ponzi-financing or the practice of debt repayment by attracting new debt.should also be noted that, unlike the debt relations, where the debts are decoupled from corporate assets, participation in assets will provide more equal distribution of wealth, risks and losses and, thus, prevent the concentration of risk, making the financial system more stable.participation in assets will make borrowers more flexible and allow them better adapting to economic changes that will increase competitiveness of firms and economy in whole.transition to participation in assets is also advantageous for banks as deposits placed in banks will be no debt, but participation in assets that will prevent decoupling between bank s debt and its assets. To do this, deposits in banks should be divided into savings and participation in assets. So, if an individual wants just save the money for the future, he can make a non-interest saving, which is a debt obligation, if individual wants to multiply wealth and is ready to risk for it he can take advantage of participation in assets.of debts from assets is also connected with
liquidity trap . This is well illustrated by the example of Japan, where, after asset bubbles burst in the 80s of the last century, a large number of companies found itself unprofitable and with large amount of non-performing loans.Koo deep recession in the Japanese economy ( as well as the current global crisis) connects with balance sheet recessions - when bubble burst wealth of private sector declined but debts remained unchanged. A large number of private companies faced defaults leading to the credit crisis:
) Reduction of the firms assets, causing a decline in their creditworthiness, causes a reduction in lending activity
) companies to restore its balance sheet urgently begin to repay old...
