I have never understood the unwavering reluctance by the Fed to lean against emerging asset bubbles. Now — in the wake of the worst financial mess since the Great Depression— it looks like that reluctance is disappearing:
Bernanke Weighs Limiting Consolidation, Asset Bubbles, Craig Torres: Oct. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank will consider discarding its long- standing aversion to interfering with asset-price bubbles and warned that the banking business may be concentrated in too few companies.
Officials should review how supervision and interest rates can minimize the "dangerous phenomenon" of bubbles in housing, stocks and other assets that risk bringing the financial system and economy down with them when they burst, Bernanke said.
"There is no doubt that as we emerge from the current crisis that we are all going to look very hard at that issue and what can be done about it," he told the Economic Club of New York in his broadest remarks on future regulatory changes since the credit crisis deepened last month.
The comments signal that the 54-year-old chairman, while trying to quell the worst market turmoil since the 1930s, is crafting an agenda for greater oversight. Policy makers will toughen their response to "excessive leverage," give more weight to financial stability in economic analysis and examine ways to strengthen the system of trading and settlement behind complex derivative securities, he said.
The U.S. faces "a very serious too-big-to-fail problem," in which the insolvency of a large financial company could threaten a market collapse, Bernanke said in reply to an audience question. "There are too many firms that are in some sense systemically critical." …