Of course, the nonlinear risks associated with a collapsing bubble may depend on the initial health of the financial system, and under some circumstances we could be worried about the potential for significant financial distress to accompany the bursting of a bubble, should that bubble expand further.
Even in such cases, however, I wonder whether good prudential supervision in advance and prompt action to clean up any lingering structural problems afterward would not be better ways to deal with this possibility. Certainly, closer oversight of banking systems during the 1980s, including the United States, would have left many economies in a stronger position during the early 1990s.