The Trouble With Financial Bubbles
Central bankers remain divided about when they should seek to prick asset bubbles, with some arguing that maintaining financial stability is too complex an objective. But we need our central bankers to make difficult decisions that require balancing potentially conflicting objectives, even if they are not always right.
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LONDON – Very soon after the magnitude of the 2008 financial crisis became clear, a lively debate began about whether central banks and regulators could – and should – have done more to head it off. The traditional view, notably shared by former US Federal Reserve Chairman Alan Greenspan, is that any attempt to prick financial bubbles in advance is doomed to failure. The most central banks can do is to clean up the mess.