The detailed financial stability reports published by the International Monetary Fund and a number of central banks are intended to serve this purpose. 8 And the Financial Stability Oversight Council created under the Dodd-Frank Act is charged with preparing such a report once a year. Admittedly, most such reports failed to identify the mechanisms behind the recent crisis.
And even when vulnerabilities were identified and warning bells sounded, they were often greeted with yawns, as anyone who remembers the phrase “irrational exuberance” can testify. Those who sounded the alarms were seen as killjoys who refused to join the party. Words are important, but clearly they are not enough. We need strong policies to back them up.