The Bubble Economy. The Direct Cause Of The Japanese Banking

The Stock Market Crash played a major role in bank failures. After the crash, people were indifferent about the stability of banks, so they all began taking out their savings. Banks no longer had the currency to stay open. For those who did not take this

As competition increased between savings and loans, banks, and credit unions, banks were eager to attract loan applicants in order to increase revenue and compete with other financial institutions. Jack S. Light, the author of Increasing Competition between Financial Institutions, said in his book that “commercial banks are diversifying their assets toward higher percentages of mortgages and consumer loans, and thrift institutions are seeking authority to diversify their loan structures. Moreover, mounting pressures are working toward, and have partially succeeded in, changing the authority of thrifts to include third-party payment accounts similar to commercial bank demand deposits.” (Light) Because of this eagerness to bring in new clients, they were willing to give out loans without checking into the financial stability of the borrower or the business that was requesting the loan. Unfortunately since the banks didn 't look into their clients’ financials adequately, many clients defaulted on their loans because they could not afford the payments, especially when balloon payments started.

1. Outline very briefly the main factors that led to the bubble economy of the 1980s and

The financial crisis did not happen in a day or two, it was triggered by a variety of events that happened.in years ago. In year 1998, The Glass-Steagall legislation was repealed, it is a legislation that separated investments and commercial banking activities in the financial sector. This act then allowed banks in the US to act in both the commercial and investment fields, which allowed them to participate in highly risky business. This is somehow responsible for the mortgage-backed derivatives, which is a main cause of the

The Japanese thought returning to a state-controlled economy would further alleviate the financial problems. However, these actions did not correct their economy. The Japanese people blamed their

In the 1900s, Japan faced a lot of economic obstacles. Due to its location on four moving tectonic plates, Japan experiences earthquakes more often than most other countries, Banks, at the time, struggled to keep economic activity stable after earthquakes and even attempted to regulate the flow by granting companies the ability to sell their products without having a drastic change in price. Following the discussion of earthquake bills and such, news was brought to the attention of the Japanese government that a bank in Tokyo had finally gone bankrupt. This sent many into a frenzy trying to get a hold of their money from banks, and in turn, many banks closed. However, this Japanese bank was indeed, not bankrupt, it was only struggling,

Japan’s unemployment rate of about 4% opposed to the U.S. unemployment rate of close to 10%. Even the financial debt to GDP ration is an advantage, and debt in the private sector has not increased unlike the U.S. and European countries, (Time, 2009). In addition, since Japan is a huge exporter and with the U.S. demand going downward, the international balances and growth declined especially as the dollar value dropped and the yen surged. •

First being a balanced budget, followed by suspension of new loans from the Reconstruction Finance Bank (this source of supply of money was identified as the root cause of inflation), and lastly, reducing as well as completely eliminating subsidies. The above-mentioned policies were identified to aid in accelerating the Japanese economy. Dodge’s policies caused problems along the way in its implementation but it created a path for recovery without the help of America. The Japanese were encouraged to economize and accumulate capital through such a policy.

The Recession of 2008 was caused by two major faults: the use of subprime lending and changes in banking culture leaning towards self interest within the banking industry.

• Governance and oversight: Assessing business model and strategy changes and reinforcing the importance of sound corporate governance appropriate for the size and complexity of the individual bank. A specific focus will be on determining the adequacy of strategic, capital, and succession planning. Examiners will assess whether the plan is appropriate in light of the risks in new products or services. If applicable, examiners will assess the bank’s merger and acquisition processes and procedures.

There has been a debate for years on what caused the Financial Crisis in 2008 and if there was one main cause, or a series of unfortunate events that led to the crisis. The crisis began when the market was no longer funding many financial entities. The Federal Reserve then lowered the federal funds rate from 5.25% to almost zero percent in December 2008. The Federal Government realized that this was not enough and decided to bail out Bear Stearns, which inhibited JP Morgan Chase to buy Bear Stearns. Unfortunately Bear Stearns was not the only financial entity that needed saving, Lehman Brothers needed help as well. Lehman Brothers was twice the size of Bear Stearns and the government could not bail them out. Lehman Brothers declared bankruptcy on September 15, 2008. Lehman Brothers bankruptcy caused the market tensions to become disastrous. The Fed then had to bail out American International Group the day after Lehman Brothers failed (Poole, 2010). Some blame poor policy making and others blame the government. The main causes of the financial crisis are the deregulation of banks and bank corruption.

It should be noted, prior to the crisis, there was already an increasing concern of economists and critics about the credit quality that was provided by the financial sector at the time when there was low interest rates that were applied by the government. There were also issues about the inappropriateness or ineffectiveness of the standards that were used in extending credit by the financial sector (Calvo, 171).

The impact of the intervention was immediate and within two years the dollar had fallen relative to Germany Deutsche mark and relative to the Yen. The Us Economy also became geared more toward exports, while Germany and Japan increased their imports too. This helped resolve the current account deficits and helped to minimise protectionist policies. However, among the G-5 nations Japan was badly affected, from the Plaza Accord, by the dramatic rise in the Yen it’s exporters unable to remain competitive overseas and Japan also experienced the economic crisis following the Japanese asset price bubble during the 1990s called the Lost

Japan ranks as the third largest economy in the world as of 2010. The GDP at current prices in US dollars in Japan was reported at 5068.06 billion in 2009, according to the International Monetary Fund (IMF). Japan’s resurgence after World War II has however reached an inflection point in yearly 1989 after the burst of Japan’s asset price and real estate bubbles. As can be seen from the graph below, Japan’s GDP has hovered around the same level through more than 20 years of economic stagnation. The GDP’s slow growth has been exacerbated by the world financial crisis of 2008. A major landmark of Japan’s stagnation has been the BOJ’s fight against deflation.

Corporate governance has been a major issue for Japan and has undoubtedly affected the economic growth of the country. In 2012, what is considered commonplace in regards to corporate governance in many countries, including Asian countries, is not the norm in Japan. For example, in countries like India, China, and South Korea, companies are required to have at least one independent director. In New York, a firm must have a majority of independent members in their board of directors. According to a study in 2011, out of 1,668 Japanese firms only 34% had at least one independent director. (insert citation). According to Yuko Kawamoto of Waseda University, Japanese bosses argue that “similar rules in Japan would limit managers' freedom” (as stated in “Back to the Drawing Board,” 2012). Also in Japan, shareholders do not have any one to advocate for them because boardroom committees have no legal status (“Corporate Governance in Japan,” 2012). All of this, coupled with Japan’s culture of foreign exclusion, is a big problem for the country. By not paying attention to its competitors, especially in Asia, and not expanding the culture of their corporate boards, Japan is missing out on many opportunities to look beyond their borders and successfully grow their economy.