We've Been Barney Franked and We Did It To Ourselves

The Lost Decade - Japan's Economic Crisis

The economic miracle ended abruptly at the very start of the 1990s. In the late 1980s, abnormalities within the Japanese economic system had fuelled a massive wave of speculation by Japanese companies, banks and securities companies. Briefly, a combination of incredibly high land values and incredibly low interest rates led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and securities.

Recognizing that this bubble was unsustainable (resting, as it did, on unrealizable land values - the loans were ultimately secured on land holdings), the Finance Ministry sharply raised interest rates. This popped the bubble in spectacular fashion, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the huge debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks having to be bailed out by the government.

Eventually, many become unsustainable, and a wave of consolidation took place (there are now only four national banks in Japan). Critically for the long-term economic situation, it meant many Japanese firms were lumbered with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and have been for several years, and despite this credit is still difficult to obtain.

Overall, this has led to the phenomenon known as the "lost decade"; economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life has been rather muted, however. Unemployment runs reasonably high, but not at crisis levels (the official figure is a little under 5%, but this is a considerable underestimate - the real level is probably around twice that). This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle.


Doesn't this sound familiar? Deja You, we've been there had that done to us. The Lost Decade you say, well I'll be damned.

Barney Frank along with Chris Dodd deserve most of the credit, bad credit that is, for much of America's economic meltdown. Freddie and Fannie were the leverage tools they used to bring about the near economic collapse in the banking, investment, and housing industries. These three key sectors of our economy affected many others, and have given us this current economic malaise. They were the architects which crafted the lending regulations that forced banks into making loans to unqualified borrowers. Borrowers many of whom not only were unqualified but were flat out untrustworthy to repay any loan they did receive.

Frank and Dodd aren't alone in this though, there are many of the innocent who aren't as innocent as they would have you believe. Somebody was pushing the real estate price tag envelope. Too many someones got caught up in the frenzied notion that an ez way to become a millionaire was to flip their domain as fast as the bank would let them. Forgotten in this crazy game of musical houses, for all the profit being made on the last house, the next house being purchased was going up in price at the same rate. Mortgages weren't being paid down, but zeros kept being added to them, and you signed the papers.

Some story about grains of wheat and chess boards come to mind- the one about the king who agreed to pay the wise man in grains of wheat based on doubling the amount over the 64 squares of the chess board- the gist of the story is a demonstration of the exponential power of numbers. By the 64th square of 2, the amount of wheat grains the king would owe the wise man would cover the surface of the earth about six inches deep.

Frank and Dodd provided the tipping stone, but basic greed by betting the family roof was in play here too. Lost Decade, make that Lost Generation.

Steve