US Federal Reserve Governor says Fed can and should deflate some asset bubbles

Frederic Mishkin, a current U.S. Federal Reserve governor, says that the Fed should act to deflate some asset bubbles, particularly those which impact the banking system.

It's a rather dense reading. The main point, though, is that the Fed does have the authority to use relatively narrow regulations to do the above. For example, the Fed could have increased banks' capital requirements during the housing bubble (tier 1 capital is shareholders' equity, which is assets minus liabilities). Banks would not have been able to make as much as they did in loans, and/or invest as much as they did in risky assets. Booms and busts are a core part of capitalism, but had the Fed done the, the current bust would probably have been ameliorated. Of course, Greenspan is a hard-core free markets guy, and doesn't believe in regulation.