Many savers are also homeowners; indeed, a family's home may be its most important financial asset. Many savers are working, or would like to be.

When historical relationships are taken into account, it is difficult to ascribe the house price bubble either to monetary policy or to the broader macroeconomic environment.

Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.

Certainly, 9 percent unemployment and very slow growth is not a good situation.

Now that I'm a civilian again, I can once more comment on economic and financial issues without my words being put under the microscope by Fed watchers.

Home purchases that are very highly leveraged or unaffordable subject the borrower and lender to a great deal of risk. Moreover, even in a strong economy, unforeseen life events and risks in local real estate markets make highly leveraged borrowers vulnerable.

High levels of homeownership have been shown to foster greater involvement in school and civic organizations, higher graduation rates, and greater neighborhood stability.

For many of us, owning a home signaled a passage into adulthood that coincided with the start of a career and family.

The children of the unemployed achieve less in school and appear to have reduced long-term earnings prospects.

Because a person has to be either working or looking for work to be counted as part of the labor force, an increase in the number of people too discouraged to continue their search for work would reduce the unemployment rate, all else being equal - but not for a positive reason.

In any given month, a large number of workers are being hired or are leaving their current jobs, illustrating the dynamism of the U.S. labor market.

Long-term unemployment is particularly costly to those directly affected, of course. But in addition, because of its negative effects on workers' skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy.

The role of liquidity in systemic events provides yet another reason why, in the future, a more system wide or macroprudential approach to regulation is needed.

Among other objectives, liquidity guidelines must take into account the risks that inadequate liquidity planning by major financial firms pose for the broader financial system, and they must ensure that these firms do not become excessively reliant on liquidity support from the central bank.

To be sure, the provision of liquidity alone can by no means solve the problems of credit risk and credit losses; but it can reduce liquidity premiums, help restore the confidence of investors, and thus promote stability.

The failure of Lehman Brothers demonstrated that liquidity provision by the Federal Reserve would not be sufficient to stop the crisis; substantial fiscal resources were necessary.

Sector-specific price declines, uncomfortable as they may be for producers in that sector, are generally not a problem for the economy as a whole and do not constitute deflation.

Deflation is defined as a general decline in prices, with emphasis on the word 'general.'

Since World War II, inflation - the apparently inexorable rise in the prices of goods and services - has been the bane of central bankers.

To be sure, faster growth in nominal labor compensation does not necessarily portend higher inflation.

Rents should begin to decelerate as the demand for owner-occupied housing stabilizes and the supply of rental units increases.

Growth in U.S. real imports slowed to about 3 percent in 2006, in part reflecting a drop in real terms in imports of crude oil and petroleum products.

Following an extended boom in housing, the demand for homes began to weaken in mid-2005. By the middle of 2006, sales of both new and existing homes had fallen about 15 percent below their peak levels. Homebuilders responded to the fall in demand by sharply curtailing construction.

Banks need to continue to lend to creditworthy borrowers to earn a profit and remain strong.