Axel Leijonhufvud on recession

Axel Leijonhufvud was one of my favorite professors at UCLA. He is a very thoughtful man. He has a piece here:

What is the difference [with this recession]? It resides in the state of balance sheets. The financial crisis has put much of the banking system on the edge – or beyond -- of insolvency. Large segments of the business sector are saddled with much short-term debt that is difficult or impossible to roll over in the current market. After years of near zero saving, American households are heavily indebted.
The holes that have opened up in the balance sheets of the private sector are very large and still growing. A recent estimate by Jan Hatzius and Andrew Tilton of Goldman Sachs totes up capital losses of $2.1 trillion; Nouriel Roubini thinks the total is likely to be $3 trillion. About half of these losses belong to financial institutions which means that more banks are insolvent – or nearly so – than has been publicly recognised so far.
So the private sector as a whole is bent on reducing debt. Businesses will use depreciation charges and sell off inventories to do so. Households are trying once more to save. Less investment and more saving spell declining incomes. The cash flows supporting the servicing of debts are dwindling. This is a destabilising process but one that works relatively slowly. The efforts by financial firms to deleverage are the more dangerous because they can trigger a rapid avalanche of defaults (Leijonhufvud 2009). . . .

I disagree with him on the issue of saving, simply because I think that the government's measure of saving is so incredibly poor -- leaving out the net worth that people have in their houses as well as money put in investments such as stocks. I also disagree with Axel on the causes of this (as I have written in my many op-eds).