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Hidden U.S. Subprime Losses May Mirror Japan Bank Crisis


By Michael Nystrom
July 30, 2007


My friend Charles sent me this article from Reuters:

Hidden U.S. Subprime Losses May Mirror Japan Bank Crisis.

It begins:
NEW YORK (Reuters) - Investors and banks holding on to U.S. subprime mortgage bonds in hopes of a recovery in value may make losses worse, mirroring the Japanese banking crisis in the 1990s, according to authors of a new report.

The Japanese banking crisis, triggered in the early 1990s by a slumping property market and brokerage collapses, led to a decade-long credit crunch. The government subsequently had to step in to stabilize the banking system by injecting public money into top banks.

"The Japanese experience of holding large losses as opposed to taking a hit and moving on was a direct cause of the Japanese malaise," said Josh Rosner, co-author of the report and a managing director at Graham Fisher, an investment research firm in New York....
Now this is an interesting development that we'll have to keep our eyes on. Western banks complained for years that it was a cultural trait of the Japanese that they didn't want to recognize their losses - it was just too embarrassing, and they'd lose too much face. As a result, their economy got caught in a deflationary malaise for 13+ years.

Are Americans just as averse to recognizing losses? I imagine they are, especially when the losses are that big... Stay tuned.

Hidden Read the whole thing at Reuters.



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