the period of prosperity that preceded it. i believe that the categorization of recent events as deviant, ultimately, will depend on what happens next. that is, if policy changes cause future economic performance to suffer, then the boom of the last generation may, regrettably, turn out to be more exceptional than the bust. the stability experiment that new policies are being implemented during a period of economic turmoil is no coincidence. these new preferences reveal much about the type of economy to which policymakers aspire. and to be clear, the stability experiment appears well intended. it aspires to manage the economy with greater care and more expansive and effective regulation, as well as a larger and more persistent role for government action, and an increase in home bias in global commerce. advocates of the stability experiment – each guided by their own compass – seem all too inclined to announce that the growth experiment has ended, and to conclude that the results are deeply disappointing. they seem to prefer to define deviancy up, wishing to assure an uncertain citizenry. if government policies are corrected, and private practices are made more prescriptive, they argue, the ship of state can ensure that the real economy avoids rough seas altogether. the political economy confirms the policy response : policymakers may pay greater attention to insuring against rare bad events – to which they could be held to account – than to allowing scores of great things to flourish. kevin warsh ( 2007 ), " market liquidity : definitions and implications, " speech delivered at the institute of international bankers annual washington conference, washington, march 5. kevin warsh ( 2009 ), " the panic of 2008, " speech delivered at the council of institutional investors 2009 spring meeting, washington, april 6. as i mentioned at the outset, stability, in the sense of lower macroeconomic volatility, is a fine objective, but it is not a final one. the conduct of monetary policy, for example, aims to achieve price stability throughout the economic cycle. but central bankers do so because we believe it is the precursor to strong and sustainable growth. if other policies – notably, those for fiscal, regulatory, and trade – treat stability as the ultimate objective, then we might find ourselves with lower growth and diminished economic potential. reform efforts are sorely needed, and practices demand marked improvement. but policymakers are wise to resist the hubris that most recently afflicted actors in the financial sector. i describe this mix of new pro - stability policies

this key segment of the financial system. finally, for a variety of reasons, the federal reserve has developed extensive relationships with foreign central banks and bank supervisors. these relationships have proved useful in past crises and will likely be even more valuable in an increasingly global financial and economic system. when managing a crisis, prudent decisionmaking depends on the best possible information acquired in the shortest possible period of time. by information i mean more than just facts ; i mean the informed analyses of the facts that help us understand the true financial condition of the distressed firms and markets and the potential for broader effects. for example, if a major financial institution is facing serious problems, we need to know its most important on - and off - balance - sheet activities, its key lines of business, its most important counterparties, its most important market activities, and its net worth as well as how close it is to failure. in addition, we must get a fix on the primary causes of the institution's problems and on how long the causal factors are likely to last. once we understand as best we can the situation we face, we need information to help us assess whether the financial disruption has the potential to significantly spill over to the real economy. the extent of spillover depends upon complex patterns of interdependencies between the immediate source of the financial disruption and other parties, and the speed and cost with which affected parties could obtain substitute providers for the financial services that have been disrupted. as you can imagine, getting the needed information is likewise a very complex and uncertain task, especially when timeliness is of the essence. once such questions are answered, we would have to judge the possible effects of the financial shock on credit flows, payments and settlement systems, and asset prices and, more broadly, on uncertainty and confidence in the financial sector. we would then go on to consider how these effects might influence consumption, investment, and employment. although information when financial stability may be threatened is crucial, the regular and periodic collection of information in more normal times has limitations and potential costs, especially for sectors that do not have access to the public safety net. for example, if it leads market participants to believe that the government will in some circumstances protect them from loss, the costs of the resulting increase in moral hazard and reduction in market discipline could exceed the benefits the information would provide to policymakers. and such information may be of little value to policymakers in a crisis if private risk managers can change their positions so rapidly that any