In an interesting piece, Roubini points to structural problems in the world economy:

There is a huge excess capacity for the production
of manufactured goods in the global economy, as the massive, and
excessive, capital expenditure in China and Asia (Chinese real
investment is now close to 50% of gross domestic product) has created
an excess supply of goods that will remain unsold as global aggregate
demand falls.

Odd company or not, note that to the extent that Roubini is correct that past credit excesses have resulted in over-capacity (ala ABC) then our present problems go considerably beyond credit supply.  Tyler is more optimistic than me on these matters.

This trade-off points to a dilemma of financial regulation. The more we protect banks from potential losses, the less banks can protect the rest of us from financial risk.

I’m still working on the longer piece.  The general point is that banks are a mechanism for risk-sharing, as is debt for that matter.

Megan McArdle wonders:

Prospectively, if you want to do it effectively, you probably need to intervene in the very early stages.  The Fed raised interest rates in the late 1920s, to no effect–indeed, it encouraged foreign capital to flow in.  Iceland’s central bank, too, tried to quiet its financial bubble, but borrowers simply ignored them–borrowed at the higher rate, or stupidly took on currency risk by getting auto loans and mortgages from abroad.  Meanwhile, more lenders were attracted by the higher rates.  If you think house prices will go up 10% every year, a 1% increase in mortgage interest rates is not really that worrying.

Do you know any good pieces on this topic?  Daniel Gross also says it is hard to do.  Here is one article on Bernanke’s bubble laboratory.