LESSONS FROM ASIA'S LAST MELTDOWN: ACT FAST
Michael Schuman & Coco Masters
Time, October 10, 2008
As the global financial system sinks deeper into the abyss, policymakers and economists in Asia are reflecting on their own past financial meltdowns in search of lessons that could help the U.S. and Europe. As ministers for the G-7 group of industrialized nations meet in Washington today to discuss the crisis, Japanese officials in particular are expected to offer up guidance to their Western colleagues. "Japan can be of help by letting them know our experience of struggling" with economic turmoil, Japan's Finance Minister Shoichi Nakagawa told reporters Tuesday.
The message will be blunt: If you want to restore confidence in stock markets and among financial institutions, recapitalize your banks — quickly. This message already has some traction in Washington. The U.S. Treasury department is discussing a plan to use public funds to recapitalize banks. The U.K. government already took that step earlier this week, while Iceland has nationalized banks.
Japan learned how to handle a financial crisis the hard way. In the 1990s, the country experienced a financial debacle similar to the one facing the U.S. today after stock and real estate bubbles imploded. The result was the Lost Decade. Between 1992 and 2003, Japan's real GDP growth averaged less than 1% a year.
Japan now realizes the mistake it made back then: failing to act with speed and force. Loose accounting standards allowed banks to hold soured assets on their books without writing them down to their true market value. This permitted financial institutions that were technically bankrupt to delay taking in fresh capital — a move that would have hurt existing shareholders but restored banks to health. The government dawdled for more than half a decade, allowing banks to carry on in a diminished capacity, despite the fact that with key lending institutions crippled, the broader economy could not thrive.
(...) [artículo aquí]
Michael Schuman & Coco Masters
Time, October 10, 2008
As the global financial system sinks deeper into the abyss, policymakers and economists in Asia are reflecting on their own past financial meltdowns in search of lessons that could help the U.S. and Europe. As ministers for the G-7 group of industrialized nations meet in Washington today to discuss the crisis, Japanese officials in particular are expected to offer up guidance to their Western colleagues. "Japan can be of help by letting them know our experience of struggling" with economic turmoil, Japan's Finance Minister Shoichi Nakagawa told reporters Tuesday.
The message will be blunt: If you want to restore confidence in stock markets and among financial institutions, recapitalize your banks — quickly. This message already has some traction in Washington. The U.S. Treasury department is discussing a plan to use public funds to recapitalize banks. The U.K. government already took that step earlier this week, while Iceland has nationalized banks.
Japan learned how to handle a financial crisis the hard way. In the 1990s, the country experienced a financial debacle similar to the one facing the U.S. today after stock and real estate bubbles imploded. The result was the Lost Decade. Between 1992 and 2003, Japan's real GDP growth averaged less than 1% a year.
Japan now realizes the mistake it made back then: failing to act with speed and force. Loose accounting standards allowed banks to hold soured assets on their books without writing them down to their true market value. This permitted financial institutions that were technically bankrupt to delay taking in fresh capital — a move that would have hurt existing shareholders but restored banks to health. The government dawdled for more than half a decade, allowing banks to carry on in a diminished capacity, despite the fact that with key lending institutions crippled, the broader economy could not thrive.
(...) [artículo aquí]
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