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Political Economy of the Financial Crises in Japan & the United States : A Comparative Study on the Bailout of Financial Institutions

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  • Hirofumi Takinami

    (Policy Research Institute)

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    Abstract

    Currently, the United States is suffering from a financial crisis. Japan also struggled with a financial crisis from the late 1990's to the early 2000's. What implications can be drawn from these crisis experiences of the two largest economies in the world? This paper examines, from the viewpoint of political economy, which elements are crucial in the use of bailout of financial institutions as a means to address financial crises. By analyzing these crises through the balance sheet of financial institutions at stake under the political economic condition of the advanced democratic countries, it became clear that taxpayers'/ opinion leaders understanding and market sentiment are the keystones for a successful bailout of financial institutions. This observation leads to the two central arguments of this paper as the implications of the Japanese and US crises : (1) There is a "learning effect" of Japanese financial crisis, which helped the US take quick move in addressing its crisis, an effect which should be crystallized into economics textbooks in case of future financial crises, and (2) It is significantly important that direct and swift actions are taken by the national leader and his/her secretarial organizations so that the bully pulpit is effectively utilized to overcome financial crisis.

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    File URL: http://www.eaber.org/node/23117
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    Bibliographic Info

    Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 23117.

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    Date of creation: Jan 2010
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    Handle: RePEc:eab:financ:23117

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    Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
    Web page: http://www.eaber.org
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    Related research

    Keywords: financial crisis; Japan; bailout;

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    1. Almunia, Miguel & Bénétrix, Agustín & Eichengreen, Barry & O Rourke, Kevin H. & Rua, Gisela, 2009. "From Great Depression to Great Credit Crisis: Similarities, Differences and Lessons," CEPR Discussion Papers 7564, C.E.P.R. Discussion Papers.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
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