Lessons From Japan in Stemming a Crisis - NYTimes.com
Rated • 2 reviews • economics, japan, usa, money, finance • nytimes.com
The Obama administration is committing huge sums of money to rescuing banks, but the veterans of Japan's banking crisis have three words for the Americans: more money, faster.
The Japanese have been here before. They endured a "lost decade" of economic stagnation in the 1990s as their banks labored under crippling debt, and successive governments wasted trillions of yen on half-measures.
Only in 2003 did the government finally take the actions that helped lead to a recovery: forcing major banks to submit to merciless audits and declare bad debts; spending two trillion yen to effectively nationalize a major bank, wiping out its shareholders; and allowing weaker banks to fail.
By then, Tokyo's main Nikkei stock index had lost almost three-quarters of its value. The country's public debt had grown to exceed its gross domestic product, and deflation stalked the land. In the end, real estate prices fell for 15 consecutive years.
More alarming? Some students of the Japanese debacle say they see a similar train wreck heading for the United States.
"I thought America had studied Japan's failures," said Hirofumi Gomi, a top official at Japan's Financial Services Agency during the crisis. "Why is it making the same mistakes?"
Many American critics of the plan unveiled Tuesday by Treasury Secretary Timothy F. Geithner said the plan lacked details. Experts on Japan found it timid -- especially given the size of the banking crisis the administration faces.
"I think they know how big it is, but they don't want to say how big it is. It's so big they can't acknowledge it," said John H. Makin, an economist at the American Enterprise Institute, referring to administration officials. "The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks."
The Japanese have been here before. They endured a "lost decade" of economic stagnation in the 1990s as their banks labored under crippling debt, and successive governments wasted trillions of yen on half-measures.
Only in 2003 did the government finally take the actions that helped lead to a recovery: forcing major banks to submit to merciless audits and declare bad debts; spending two trillion yen to effectively nationalize a major bank, wiping out its shareholders; and allowing weaker banks to fail.
By then, Tokyo's main Nikkei stock index had lost almost three-quarters of its value. The country's public debt had grown to exceed its gross domestic product, and deflation stalked the land. In the end, real estate prices fell for 15 consecutive years.
More alarming? Some students of the Japanese debacle say they see a similar train wreck heading for the United States.
"I thought America had studied Japan's failures," said Hirofumi Gomi, a top official at Japan's Financial Services Agency during the crisis. "Why is it making the same mistakes?"
Many American critics of the plan unveiled Tuesday by Treasury Secretary Timothy F. Geithner said the plan lacked details. Experts on Japan found it timid -- especially given the size of the banking crisis the administration faces.
"I think they know how big it is, but they don't want to say how big it is. It's so big they can't acknowledge it," said John H. Makin, an economist at the American Enterprise Institute, referring to administration officials. "The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks."
As the demographic squeeze grows tighter, Japan may have to open itself further to immigration, experts say, if it is to have the workers it needs to remain a major industrial power. A homogeneous and insular nation, however, Japan is notoriously unwelcoming to immigrants; Koreans who came here during World War II are still treated as second-class citizens.
