Dean Baker on future crisis prevention:

In fact, the main problem was that the housing bubble was driving the economy, generating $1.2 trillion in annual demand through construction and housing equity driven consumption. There is no easy mechanism through the economy can replace this much lost demand. That would be the case whether or not the collapse of the bubble was associated with a financial crisis.

The article also fails to list one of the most simple and obvious ways that central banks can combat a bubble: talk. During the run-up of the housing bubble, Federal Reserve Board Chairman Alan Greenspan repeatedly said that everything was fine in the housing market, as did Ben Bernanke, who was a governor at the Fed for most of the period. This helped undermine the case of those who were warning of the bubble.

A week ago Barry Ritholtz pointed out that the housing bubble was a global phenomenon (see graph below). Does this mean that no matter the U.S. government's policies - mortgage tax credit, Fannie/Freddie, Greenspan's public opinions - there would have bubbles in other countries? Should have all central bankers talked down the bubble? Would a better-regulated financial system have been able to prevent a crisis? Why didn't either Germany or Japan have a bubble?