There is a lot of excellent discussion in the four segments of the Nov 19, 2009 Cato conference. Video and audio podcasts are available here. I highly recommend Panel 4: The Way Forward, especially these two lectures for the best policy prescriptions:
Senior Fellow, Cato Institute, and Former President Federal Reserve Bank of St. Louis
Allan H. Meltzer
The Allan H. Meltzer University Professor of Political Economy Carnegie Mellon University
Both are included in this podcast (MP3). Both recommend for modifying tax law and existing regulation to adjust market incentives, and recommend against significant new regulation. A sample of their key points:
1. The consumption fraction of GDP must fall (from trailing 70+%).
2. Fiscal policy should concentrate on increasing business investment — suggesting tax law change to make capital investment deductable in the year incurred.
3. Current law incentivizes excessive leverage. Suggests phasing out the corporate interest deduction, offsetting this tax increase with a corresponding revenue neutral reduction in the corporate tax rate.
1. You can fix the mortgage toxic asset problem by balance housing supply/demand, but you can’t fix the housing price spiral by “fixing” mortgage rates.
2. 2008 house sales were about 700,000 vs. normal rate of 1,500,000 sales.
3. Policy: tax law change to make down payments on housing purchases deductable for 2009. This will also improve labor market for residential construction, a big part of the US economy.