This paper first provides a brief review of the global financial tsunami. It then explains why the quantitative easing in the US and the unique characteristics of the Asian property markets have contributed to the formation of property bubbles in some Asian economies. Thereafter, it discusses the possibility of a bursting of property bubbles in Hong Kong, Singapore or another Asian economy a few years from now, and highlights that the bursting of the property bubble in that economy could trigger severe corrections of property prices in this region through the contagion effect. After pointing out that the implied crisis could be more severe than that during the Asian Financial Crisis, it (i) discusses policies that could mitigate the damages of the potential crisis and (ii) draws important lessons and conclusions that could pre-empt similar disasters in the future.

This paper first discusses the major characteristics of the seeding stage, the development stage and the final stage of an asset bubble. In particular, it emphasizes the role of expectation, some major changes in economic behaviors, financial leveraging, some important vicious cycles, upward spirals and herding behavior in the eventual development of an asset bubble. Thereafter, it discusses the policy implications of such an analysis. The second half of the paper extends the discussion to some important changes in economic behaviors, financial deleveraging, vicious cycles and downward spirals that would push an early-developed financial crisis into a full-blown economic crisis. Based on the characteristics and the experience of some major financial crises in the past few decades, the paper discusses policy measures that could be adopted during the crisis period and the post-crisis recession.

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