4  BIS Review 160/2010  policymakers face obvious limitations. Authorities hardly have knowledge that is superior to that of market participants, and typically most economic agents do not recognize bubbles as they develop, which is one condition for the persistence of bubbles. Widespread underestimation of risks was certainly the case in the global crisis.
Although some authors, such as Kasriel (2004) and Rajan (2005), warned of increased risks before the problems arose, their admonitions were widely ignored. The fact that most authorities miscalculated the risks in the crisis is worrisome.