I was hoping the Reinhart/Rogoff book would have addressed this but they never seemed to address why these “mis-pricings” would be so pervasive over such a long period of time. I doubt its random; seems something systematic underlies it.

Thanks again for all of your hard work shining the spotlight on these issues!

Thanks for the reply Jared! I get that the supply of loanable funds drives the price down for debt generally; what I’m questioning relates more to the second part of your response: “Minsky believed that as recoveries mature, risk tends to become underpriced in financial markets.” This is the increase in “risk seeking” behavior I was referring to. If the price of the riskier debt rose as the risk (debt/income) did (relative to “safe” debt – in a CAPM sort of way for lack of better descriptor), the increased loanable funds would flow more to the safest debt and drive those prices down further (further increasing the spread between safe & risky debt); but that doesn’t seem to be what tends to happen. So is this just a “market failure” or is it likely to be a function of concentration of wealth in the hands investors who are now more likely to pursue greater risk with this wealth than would be the case if the wealth were more evenly distributed (and included a greater proportion of risk neutral and risk averse investors)?