Actually, I think Krugman was years ahead of all those people.  He was warning about a housing bubble back in the early-2000s.

Be nice to America. Or we'll bring democracy to your country.

then there's the top analyst from the Bank for International Settlements HQ's in Basel.  This story is amazing.   talk about inner circle!

The BIS is a closed organization owned by the 55 central banks. The heads of these central banks travel to the Basel headquarters once every two months, and the General Meeting, the BIS's supreme executive body, takes place once a year. The central bankers -- from Alan Greenspan and his successor Ben Bernanke, to German Bundesbank President Axel Weber and Jean-Claude Trichet, the head of the European Central Bank (ECB) -- are fond of the Basel meetings. When they arrive, the BIS's dark office building at Centralbahnhof 2 in Basel suddenly comes alive. Secretaries inhabit the otherwise deserted offices of the governors, stenographers and chauffeurs stand at the ready and dark limousines wait outside.

it gets better

White and his team of experts observed the real estate bubble developing in the United States. They criticized the increasingly impenetrable securitization business, vehemently pointed out the perils of risky loans and provided evidence of the lack of credibility of the rating agencies. In their view, the reason for the lack of restraint in the financial markets was that there was simply too much cheap money available on the market. To give all this money somewhere to go, investment bankers invented new financial products that were increasingly sophisticated, imaginative -- and hazardous.

As far back as 2003, White implored central bankers to rethink their strategies, noting that instability in the financial markets had triggered inflation, the "villain" in the global economy. "One hopes that it will not require a disorderly unwinding of current excesses to prove convincingly that we have indeed been on a dangerous path," White wrote in 2006.

Put yourself in White's shoes...

The Jackson Hole paper was an assault on everything Greenspan had preached and, as everyone knew, he was not fond of being contradicted. Other members of the audience glanced surreptitiously at the Maestro to gauge his reaction. Greenspan remained impassive, his face expressionless behind his large spectacles, as he listened to White. Later, during a more relaxed get-together, he refused to even look at White.

White suspected he had failed to convince his audience.

"You can lead a horse to water, but you can't make it drink," he says.

This article deserves to be read and then digested, even if it comes from Der Spiegel.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

No one saw it coming?  More like no Serious People^TM listened to those who did see it coming.  Our society currently is not organized in such a way as to allow any significant prior constraint on the machinations of the big money boys, and they own enough of the system to veto any attempt to change this fact.  Hell, we can't even get enforcement of existing laws that should constrain them.

"It is not necessary to have hope in order to persevere."

Thank you Chris. Great link. Although, i don't really understand what Mr. Bezemer means with "accounting model". Even that Hudson's model is too complicated ;). Only 3 boxes would be necessary: Fire-Production-Government. Only Production creates wealth, others are costs.
There is a basic contradiction in this neoclassical economics. To create wealth the costs should be low and production high. However, FIRE-sector has no incentive to be "cheap". On the contrary they try to grab "profits" as much as they can. And increase costs as much as possible. Wealth creation is destroyed and no one sees it coming.

for one misleading aspect of it.  The relative sizes of the boxes give the impression that F.I.R.E is a lot more important to the economy than it really is.  The employee/consumer and producer/employer boxes should be much larger in size to prevent a reader from coming away with an exaggerated impression of the how critical FIRE is supporting to human living conditions in an economy.  Credit institutions are important, but not critical, to the functioning of an economy.

kjr63 raised a fundamental point that was ignored:

i don't really understand what Mr. Bezemer means with "accounting model"

While the question "what is wealth and how is it created" is interesting and important, for the purposes at hand, the issue of the "accounting, or flow of funds model" as opposed to "general equilibrium models widely used in academic and Central Bank analysis" is central to any attempt to resolve the systemic blindness that led us over the cliff.  That, after all, is the point of Dirk J. Bezemer's paper.  It is a continuation of the efforts of William White, the chief economist of the Bank of International Settlements for the fifteen years prior to June, 2008, whose efforts in that regard are described in the article from Der Spiegel posted by Crazy Horse above.  

The credit crisis and ensuing recession may be viewed as a `natural experiment' in the validity of economic models. Those models that failed to foresee something this momentous may need changing in one way or another. And the change is likely to come from those models (if they exist) which did lead their users to anticipate instability. The plan of this paper, therefore, is to document such anticipations, to identify the underlying models, to compare them to models in use by official forecasters and policy makers, and to draw out the implications.

There is an immediate link to accounting, organizations and society. Previewing the results, it will be found that `accounting' (or flow-of-funds) models of the economy are the shared mindset of those analysts who worried about a credit-cum-debt crisis followed by recession, before the policy and academic establishment did. They are `accounting' models in the sense that they represent households', firms' and governments' balance sheets and their interrelations. If society's wealth and debt levels reflected in balance sheets are among the determinants of its growth
sustainability and its financial stability,such models are likely to timely signal threats of instability.

Models that do not - such as the general equilibrium models widely used in academic and Central Bank analysis - are prone to `Type II errors' of false negatives - rejecting the possibility of crisis when in reality it is just months ahead. Moreover, if balance sheets matter to the economy's macro performance, than the development of micro-level accounting rules and practices are integral to understanding broader economic development. This view shows any clear dividing line between `economics' and `accounting' to be artificial, and on the contrary implies a role for an `accounting of economics' research field. Thus this paper aims to encourage accountants to bring their professional expertise to what is traditionally seen as the domain of economists - the assessment of financial stability and forecasting of the business cycle. (My bold.)

Neo-Classical Economics is a house of cards and virtually worthless except as a rhetorical underpinning for the existing, failed system, but the way in which it has been wired into the brains of so many of us is uncanny.  Once again, just when there is the opportunity to see something important and useful as a line of attack, we veer off on an unproductive tangent.  I am equally guilty as I didn't notice until after I had taken the time to read the cited articles.

While it may wound the pride of "Mainstream Economists" to accept that they need supervision by accountants, that wound is far less significant than the wound to the body politic and the entire world economy, especially their own, that their blindness has inflicted.

"It is not necessary to have hope in order to persevere."