One of the main economic villains before the crisis was the presence of large "global imbalances." The concern was that the U.S. would experience a sudden stop of capital flows, which unavoidably would drag the world economy into a deep recession. However, when the crisis finally did come, the mechanism did not at all resemble the feared sudden stop. Quite the opposite, during the crisis net capital inflows to the U.S. were a stabilizing rather than a destabilizing source. I argue instead that

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... he root imbalance was of a different kind: The entire world had an insatiable demand for safe debt instruments that put an enormous pressure on the U.S. financial system and its incentives. The world economy experienced a massive safe-assets imbalance, which is not likely to go away any time soon and, in fact, it has been exacerbated by the crisis. This general equilibrium feature is missing from much of the policy reform debate, which often points in directions that could exacerbate the shortage problem by limiting the financial sectors' ability to engineer safe assets. Instead, I argue for private-public solutions that would preserve the good parts of the securitization industry while removing the system risk from the banks' balance sheets.