Japan's Mistaken Solutions: Lessons on How Not to Respond to a Financial Crisis

Looking for a country that has "survived" a financial meltdown? Well, some would say that country is Japan, which went through a banking crisis from the mid-1990s until the mid-2000s, and has been cited as an example that America and Europe, currently going through their own financial catastrophes, should emulate. Yet officials, such as U.S. Treasury Secretary Henry Paulson, as well as dozens of analysts, continue to waver over whether Japan is an example of how or how not to deal with a banking crisis. The answer is simple. Japan's method of dealing with its banking crisis was a failure, and thus is a blueprint for how not to solve a financial crisis. The current mess that America and Europe face is similar in that their financial institutions, like Japan's, are seeing the value of their assets deteriorate rapidly. Shareholders' equity is disappearing, leading to a shortage of capital among financial institutions, obstructing their ability to make fresh loans.