##ing. the question then becomes : should the debate that is happening privately remain hidden from the public eye until the meeting minutes or jan. 3, 2004 transcripts are later released? and in the interim, is the nation somehow better served by giving the public the impression that the entire body is in agreement to the prescribed approach even when that is not the case? in the mid - 1980s, after the vote chairman volcker nearly lost created a bit of a media circus, herbert stein wrote a very interesting column about the issue for the wall street journal. mr. stein, who had been chairman of the council of economic advisers under two presidents, wrote that divergent views at the policy table should not be worrisome. it is more important, he wrote, that there are visible principles at work in shaping these views. stein wrote that in creating the central bank of the united states, “ congress intended diversity ( of views ) and the federal reserve … benefits from the appearance that diversity is at least possible. ” 2 to suggest that public support is somehow encouraged by unanimous decisions suggests little appreciation for the public and their understanding about the challenges we face. to me, that fosters a loss of confidence that can be difficult to recover. as a result, the body becomes less able to respond to a crisis and is left more vulnerable to its critics. the federal reserve ’ s founders recognized this a century ago. i hope we continue to recognize its critical importance in the years to come. as for me, i recognize that the committee ’ s majority might be correct. in fact, i hope that it is. however, i have come to my policy position based on my experience, current data and economic history. if i had failed to express my views with my vote, i would have failed in my duty to you and to the committee. the wall street journal, april 4, 1986 bis central bankers ’ speeches

speaking, the “ fundamental ” asset price is equal to the net present value of the cash flows which the owner of the asset is entitled to receive. although it is easy to state in theory, this definition it is by no means easy to apply in practice for investors, regulators or central bankers. forming forecasts of highly uncertain cash flows that stretch far into the future is a challenge, which not only requires substantial expertise but is also subject to the great uncertainty about the future values of factors influencing the asset price. for example, in 2005 – with the information available at that time – it was hard to make an unambiguously agreeable case that high us housing prices would not be confirmed by good fundamentals in the future. although there were also warnings and some speculation on price drops. in the light of such complications, practitioners often resort to complementing fundamentals - based asset price assessments with comparing current prices with historical “ manias, crashes and panics ”. bis central bankers ’ speeches averages. if current prices exceed long - term averages by a sufficiently large margin, a warning signal is recorded that a bubble might be present and further analysis is triggered about whether it risks causing a crisis. i will come back to this later in my presentation. there are many reasons why the financial system may not value assets correctly, leading to bubbles and imbalances. investors have a tendency to look for information from the behaviour of other investors. so buying and selling “ herds ” 2 can develop in financial markets on the basis of very little genuine news. imperfections in credit markets3 can lead to boom bust cycles in money and credit quantities as well as asset prices. “ moral hazard ” could bring about excessive risk taking by financial intermediaries who try to exploit naive investors4, debt - holders or the depositor safety net provided by governments5. last but not least, the inherent human decision - making limitations6 mean that actual human beings often fail to take the rational choices usually assumed in the standard academic literature. regardless of why asset price bubbles arise, there is little doubt that they pose potential risks for financial stability, especially when they involve bank - provided debt finance. in terms of the ecb ’ s framework for the analysis of systemic risk7, asset price bubbles can contribute to the build up of financial imbalances which can unwind suddenly and cause the collapse of the banking system, with serious consequences for the real economy. we know that asset price bubbles and financial crises can cause severe economic di