Levy Institute on sub-prime and US developments
Randall Wray, in a paper for the Levy Institute, provides a nice history of the sub-prime debacle, and connects it to the economics of Hyman Minsky (whose name has resurfaced in the wake of the current connundrum) in Lessons from the Sub-prime Meltdown:
This paper uses Hyman P. Minskyâ€™s approach to analyze the current international financial crisis, which was initiated by problems in the U.S. real estate market. In a 1987 manuscript, Minsky had already recognized the importance of the trend toward securitization of home mortgages. This paper identifies the causes and consequences of the financial innovations that created the real estate boom and bust. It examines the role played by each of the key playersâ€”including brokers, appraisers, borrowers, securitizers, insurers, and regulatorsâ€”in creating the crisis. Finally, it proposes short-run solutions to the current crisis, as well as longer-run policy to prevent â€œitâ€ (a debt deflation) from happening again.
And Wynne Godley and company use their Keynesian macro model to review the US economy and where things might be headed, in The U.S. Economy: Is There a Way Out of the Woods?:
This Strategic Analysis provides a retrospective view of U.S. growth in the last 10 years, showing that the authorsâ€™ previous work, grounded in the linkages between growth and the financial balances of the private, public, and foreign sectors of the economy, has proven a useful contribution to the public discussion. The analysis reviews recent events in the U.S. housing and financial markets to obtain a likely scenario for the evolution of household spending. It argues that a significant drop in borrowing is likely to take place in the coming quarters, with severe consequences for growth and unemployment, unless (1) the U.S. dollar is allowed to continue its fall and thus complete the recovery in the U.S. external imbalance, and (2) fiscal policy shifts its courseâ€”as it did in the 2001 recession.