Tuesday, September 30, 2008


On Banks and Bailouts

One of the benefits of being a continuously broke writer is that I can watch banks collapsing around me without feeling the impact too much--at least not yet. Unlike others in New York City, I don't have a massive portfolio to mourn, and I'm pretty good at doing my own cooking and enjoying small ethnic eateries and not lamenting my inability to eat at Raoul's every week. It also, unfortunately, means that I don't necessarily understand what is going on around me as I feel I should.

I do know enough to know that Japan experienced a banking collapse a decade ago, which prompts my 20-something Japanese friends to recall the "bubble" and how it dashed their dreams of partaking in massive Japanese wealth. So I wonder; is there something to learn from Japan's own bank woes and its bailout?

One article I've read seems to think so. Examining the Swedish banking collapse and the Japanese banking collapse, the author draws the following conclusions.

RESOLUTION: The Japanese government recouped a sizable amount of its bailout funds by reselling collateral, most often land, and other assets. The abysmal times in Japan during the 1990s are now known as the "lost decade." Even though the economy is better now, the Japan's stock market still hasn't returned to its peak before the bubble burst. And Japan still has about $9 billion worth of property held as collateral that needs to be sold.

LESSON FOR U.S.: Japan waited too long before resorting to a bailout using taxpayers' money to write off the mountain of bad loans on banks' balance sheets, experts say.

The Swedish government, claims the article, intervened quickly and as a result, the banking system recovered more quickly.

Regardless, I'm assuming (ahem, Mr. Pink, ahem) that we will begin to see a number of Japan-related articles in which the dangers of too much debt are examined and rexamined. Are any lessons applicable? Will anyone be smart enough to heed the lessons? I'm hoping the varied and intelligent readers of Japundit will weigh in with opinions.

On the bright side, massive economic downturns often go hand in hand with great creative output, so I'm hoping that artists will at least be inspired by this mess!

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