Hyman Minsky was an economist who developed a theory about financial markets that seems to nearly perfectly describe the path of this crisis. In fact he wrote extensively about it in 1986, right before Greenspan became our Fed chairman. It is too bad that Greenspan apparently hadn’t read Minsky or didn’t put enough weight on his teachings or the problem might not have become so large.

Currently there are countless descriptions, speculations and rantings about the causes of the financial crisis and what should or should not be done. Many are good. Many more are bad, often due to ideological beliefs and/or lack of understanding money and financial systems.

The following article is perhaps the best I have read so far. It comes from Paul McCulley of PIMCO. In it he describes how Minsky’s hypothesis applies to the current crisis.