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The U.S. Financial Crisis: Lessons From Japan, October 2, 2008 1 (October 29, 2008)

handle is hein.tera/crser0122 and id is 1 raw text is: Order Code RS22960 Updated October 2, 2008 ACRS Report for Congress The U.S. Financial Crisis: Lessons from Japan Dick K. Nanto Specialist in Industry and Trade Foreign Affairs, Defense, and Trade Division Summary Japan's five bank bailout packages in the late 1990s may hold some lessons for the United States. Most of the packages were administered by the Deposit Insurance Corporation of Japan (DICJ). The packages had an announced value of $495 billion. The DICJ reports that it provided $399 billion to Japan's troubled financial institutions of which it has recovered $195 billion. Overcoming the crisis in Japan's banks took a combination of capital injections, new laws and regulations, stronger oversight, a reorganization of the banking sector, moderate economic recovery, and several years of banks working off their non-performing loans. This report will be updated as circumstances warrant. When the U.S. Treasury planned the $700 billion bailout package (Emergency Economic Stabilization Act of 2008, H.R. 3997/H.R. 1424) to address the U.S. financial crisis, it reportedly examined the experience of Japan as it grappled with its banking crisis in the 1990s.' This report reviews the major actions by the Japanese government in dealing with its crisis and highlights some of the lessons learned from their experience. Like the current U.S. financial crisis, Japan's began with stock market and real estate bubbles. During the latter half of the 1980s, Japan's monetary authorities flooded the market with liquidity (money) in order to enable businesses to cope with the rising value of the yen. Businesses did invest in new capital equipment to become more competitive in international markets, but the excess liquidity also found its way into speculation in Japan's stock market, in real estate ventures, and in foreign investments. At that time, the market value of both land and equities was rising so fast that investors and speculators could hardly miss. Investors tended to ignore risks. The larger mistake for them was not to borrow and invest and consequently not be positioned to reap the returns from rising Faiola, Anthony and David Cho. Alternative Solutions Diverge From Administration's Approach, The Washington Post, September 24, 2008. p. A.1. Congressional Research Service The Library of Congress Prepared for Members and Committees of Congress

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