A Tale of Two Crises
Kravis Leadership Institute Leadership Review, Fall 2002
13 Pages Posted: 16 Jan 2010
Date Written: 2002
The savings and loan debacle of the 1980s was the worst financial scandal in U.S. history. The estimated present value cost to the taxpayers was $150-175 billion ($1993). The debacle was a major contributor to a sharp recession in real estate values in the Southwest. However, it had only a negligible effect on the general economy.
The Japanese economy, the second largest in the world, also experienced a crisis in the 1980s. Twin “bubbles” in its stock and real estate markets hyper inflated for most of the decade of the 1980s. In general, the bigger the bubble, the worse the ultimate effects on the general economy. When the bubbles burst in 1990 Japan was thrust into recession. Real estate values have continued to fall – for twelve years! The stock market collapse was equally sharp. The general economy has never recovered.
This paper explains that one major reason the Japanese financial crisis proved so much more severe than the contemporaneous U.S. savings and loan debacle was the quality of leadership in the financial regulatory ranks in the two countries.
Keywords: Corporate law, Financial crisis, Financial regulation, Banking, Banking regulation, Securities, Securities regulation, Control fraud, Fraud
JEL Classification: K14, K22, K23, K42, G18, G28, G38
Suggested Citation: Suggested Citation