Are We Repeating Japan’s Mistakes?

By Thomas Nagorski

Feb 13, 2009 11:32am

Analogies like these are always fraught with caveats and asterisks, but there are certainly parallels between our current financial crisis and the calamitous period Japan experienced in the 1990s.

The Japanese suffered damaging debt and then the consequences of too-meek measures aimed at diffusing the crisis. And while it may seem odd to call a trillion-dollar bank rescue plan a "too-meek measure", but those who lived through and suffered the brunt of the decade-long Japanese mess have some warnings and cautionary tales to offer the Obama Administration. As the New York Times puts it, "the veterans of Japan’s own banking crisis have two words of advice: more, faster."

It was only in 2003 that a Japanese government took larger-scale, more muscular action that led to a recovery — including letting several banks collapse, and effectively nationalizating one leading bank, at the expense of shareholders. By then Japan had endured a crushing decade — a 70 percent plunge in stock values, and a devastating deflation — led by a plunge in the value of real estate.

Is the U.S. about to race off a similar financial cliff? "I thought America had studied Japan’s failures," Hirofumi Gomi, a former official at the Japanese Financial Services Agency tells the Times. "Why is it making the same mistakes?" More here…

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