New York Times (NYT) columnist and Nobel Prize-winning economist Paul Krugman says when economists and historians try to discern the causes of the global financial crisis, they'll have to look to Asia.

After the 1997-98 Asian financial crisis, countries in the eastern hemisphere started to protect themselves against future currency contagion by racking up huge war chests of foreign revenue and assets; they also exported capital to the West.

A giant money train

In other words, the East amassed a savings surplus. And where did much of that money flow to? You guessed it: to the United States. More of it, in percent of GDP terms, actually flowed to Europe, Krugman adds, but the depth and freedom of U.S. financial markets led to, among other things, quicker money flows to mortgage financing (and households' accessing that wealth) in the U.S.

Add selected bankers' irresponsibility by creating ways to enrich themselves while simultaneously bankrupting their companies and transferring loan risk to someone else (Frankenstein-like mortgage-backed securities) and the result was, first, a housing bubble, and then, of course, the bursting of that bubble of pseudo-wealth.

Comment: The housing bubble is a U.S. economic historical fact that economic conservatives can not ignore. Widespread access to ludicrous mortgage products contributed to it, but the larger factor was the lack of job growth during the Bush administration, which created fewer than four million jobs in eight years. Had job growth been sufficient, median wages would have risen at an adequate rate -- a fact that would have convinced many to bypass problematic, risky, and often-destructive home equity loans and other curious mortgage products.

Did nations in Asia and emerging markets escape the consequences of the burst bubble? Of course not, as declining demand by Americans for goods manufactured in Asia has dragged their economies into recessions as well, along with Europe.

Economic Analysis: Once again, Krugman's analysis seems on the mark, and the U.S. Congress must pass reforms to ensure that capital is never deployed (or borrowed) in this reckless way again. Banks must retain at least a portion of the risk stake in a mortgage, and origination fees -- which pay lenders simply for making a loan, not for the loan's performance -- should be banned.

Further, the current financial crisis is actually a bit of a misnomer. There isn't a shortage of capital -- there's plenty of private capital -- just a shortage of private investors willing to deploy it, due to a lack of consumer and business-to-business demand. That highlights the need for continued quantitative easing and fiscal stimulus to increase demand.

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