September 15, 2008

USA 2008 vs. JP 1991

USA 2008 vs. JP 1991

Japan began experiencing sporadic failures of financial institutions after 1991 once the bubble burst.

These were confined to relatively small institutions and were generally regarded as isolated events

with limited systemic implications. Although stock prices had been declining since the beginning of

1990, there was a general optimism that once the aftermath of the bubble economy had been

cleaned up, the economy would be back on track towards a more balanced and sustained growth. In

fact, the economy had continued to show a positive growth rate, albeit at a slower pace. This led to an

expectation that asset prices, and thus collateral value would sooner or later pick up again and

eliminate the threat to the financial system. This general expectation allowed the authorities to adopt a

wait-and-see policy

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