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Beyond the Jumbo crisis to a transformed world

(Shanghai Daily)
Updated: 2009-03-27 11:21

Past lessons

According to Penn economics professor Harold Cole, too much government intervention could hurt the US as well.

Amyx noted that during Japan's financial crisis in the 1990s, many government measures didn't work. "Japan had five injections of capital into banks. So one clear lesson is that, in terms of re-capitalization, the government needs to do its due diligence."

Japan also spent massive amounts of money on fiscal stimulus. "It didn't work; it didn't get Japan out of the recession." One reason: Japan's political battles at the time. "The fiscal stimulus was directed in very political ways. It had nothing to do with where the economy was going. So I think one of the lessons is that (fiscal stimulus) needs to be done judiciously."

The US can also learn from the fact that Japan's turnaround took hold when the government was finally able to stop propping up the market, according to Amyx.

So as the Obama Administration considers its stimulus programs, it should keep an exit strategy in mind.

"It's very common for governments to come in and create institutions to jumpstart markets," said Amyx. "The difficulty is to withdraw that support."

One of the few silver linings of a crisis is that you get popular attention on issues like fixing our banking system.

Cole said: "A lot of what we need to do is roll back our regulatory structure to what it was in 1980. We want to go back to trying to put in place a fairly stark regulatory structure for our financial markets."

But turning the clock back 30 years could prove difficult, given how the world has changed.

Reproduced with permission from Knowledge@Wharton, http://knowledgeatwharton.com.cn. Trustees of the University of Pennsylvania. All rights reserved.

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