1/ Very interesting and (perhaps) prescient paper from Hyman Minsky called The Financial Instability Hypothesis, published in 1992.

It has a three piece framework which helps explain what we are seeing right now.

http://www.levyinstitute.org/pubs/wp74.pdf 

2/ He starts with the observations that governments are much more active in markets than at the beginning of the 20th century which mitigates some of the downside risk to firms but can lead to an inflationary bias.

(I read this as talking about "The Fed Put")

3/ He then divides economic entities into three classes:

1. Hedge Entities

2. Speculative Entities

3. Ponzi Entities

4/ Hedge entities are those that can pay their contractual obligations through their cash flows and tend to have very little debt.

5/ Speculative Entities can meet their commitments as long as they can "roll over" their liabilities (e.g. issue new debt to meet commitments on maturing debt).

6/ Ponzi entities are those where the cash flows from operations cannot fulfill either the repayment of principal or the interest due on outstanding debts.

7/ If most entities are hedge entities, the economy can be accurately modeled by an equilibrium seeking model (which most economic models are)

Narrator: But most entities aren't hedge entities...

8/ There do exist financing regimes under which an economy is stable and equilibrium seeking.

But, over long periods of prosperity, the economy tends to shift to an unstable system as debt issuance increases.

9/ Over time, as debt increases, more and more hedge entities become speculative and speculative become ponzi.

When liquidity dries up and those speculative and Ponzi entities can't roll over their debt, we see a collapse of asset values.

This is "The Minsky Moment"