Search

This paper argues that the naïve adoption of an Anglo-American approach to the management of credit risk as the prescription for Japan's prolonged financial slump would amount to a very risky strategy. The neoclassical arguments for the adoption of Basle-type pragmatism and the adoption of Anglo-American financial norms neglect the important question of how to manage Japanese lenders' uncertainty, which affects their assessment of credit risk. We point out that an ill-planned transition without mechanisms for diversifying risk and uncertainty has encouraged herd behavior in lending. We also argue that Japan's traditional rent-based mode of financial intermediation and monitoring performed important functions, including the incubation of new enterprises, and should have been retained in alternative form rather than abandoned. [ABSTRACT FROM AUTHOR]

Criticizes an article in the same issue which examines the Great Depression in the United States in the 1930s from the perspective of the neoclassical growth theory. Brief review of the growth theory; Explanation on why the behavior of market hours is the key to explaining the Great Depression; Application of growth theory to Japan's economy in the 1990s.