bursting of this bubble caused great damage to the european and us economies and people in europe and america have had to pay an unprecedented price. the us government used us $ 700 billion to bail out banks and car manufacturers, and the uk government spent gbp 76 billion on rescuing the royal bank of scotland and lloyds bank alone. many european governments have also bailed out their banking systems, including the injection of capital into large banks by the dutch and belgian governments. 6. based on experience in asia in the past two decades, i believe asset - price bubbles, rather than inflation, pose the greatest risk to financial stability. my reasons for thinking this are many and complex, and we may discuss them on another occasion. i am not saying that inflation is not a concern for asia. but i believe it is more important to address the harm that might be caused by asset - price bubbles. although i agree it is difficult to predict the occurrence of an asset - price bubble, i am certain that once a bubble is created, it will grow with immense power and suppressing it will be difficult. the bigger the bubble, the greater the devastation it will cause when it bursts. the best way to avoid the damage and heavy cost is to prevent the occurrence of a bubble or to contain it before it ’ s too late. to do this, we have to make decisions at the early stage of a bubble ’ s formation, not later. more importantly, when a bubble is taking shape, we have to take appropriate and effective steps to stop it getting too big. prudent risk management 7. the current extremely loose monetary policies around the world and the large inflows of funds provide an ideal environment and provided nourishment for the formation of asset - price bubbles in asia. so the risk of asset - price bubbles is not small. but hong kong cannot raise interest rates as it wishes, and even if we could, this would attract more hot money with undesirable consequences. so hong kong, like many other small and open economies, has to resort to other means to prevent the bubble from growing too large. 8. so what methods and tools should we use? for the property market, it is obvious that if there is a bottleneck or an imbalance in the supply of land, we have to deal with it. but the factors affecting demand, supply and prices of properties are very complex. sometimes property prices rise not because there is a shortage of residential flats to satisfy housing demand

pointed out the differences between an asset - price bubble and a bull market. the author was of the view that people who don ’ t manage to enter the stock market in time or don ’ t dare to do so when the market has gone up will regard it as a bubble and will support the government taking measures to cool things down ; but investors who have entered the market will see the increases as a bull market. price increases can be interpreted in many ways. well, a nonmainstream view like this may have some merit and, right or wrong, it illustrates the difficulty of dealing with asset - price bubbles, particularly the courage needed to make decisions at critical moments. whether these decisions are correct or not is difficult to say with total confidence and certainty beforehand, and mistakes may be made. but we cannot avoid mistakes by not making decisions because the damage to society of an asset - price bubble is too great to ignore. and we should not just rely on the government to stop the bubble expanding. it requires the involvement of banks, corporations and individuals – they need to be more risk - conscious and self - disciplined. my colleagues at the hkma and i will do our best, and i invite everyone to work hard together to meet the challenges brought about by the global financial tsunami.