The Fed is reluctantly thinking that it might consider taking action against asset bubbles in future. Chariman Ben Bernanke still says it is hard to determine a bubble.

Really? When tech stocks were trading at 50-100X earnings? When people in booming states like California were buying houses at 5-6X their income? When mortgage brokers were offering no-doc loans, or mortgages for 125 percent of income?

Alan Greenspan’s Fed looked the other way rather than tighten margin requirements during the dot.com boom and bust. And on mortgages the bank regulators, in the US at least, have a variety of tools at their disposal. The Fed could have spent a few thousand dollars hiring some local newspaper reporters to go talk with people who had taken out unaffordable mortgages. Time to get away from the huge conference table in Washington and look at the impact of the financial system on average people who get talked into the bubbles late and lose retirement savings or their homes.

Filed under: Credit Crunch, regulation, risk