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"Virtually all the analysts point out the spectre of the Japanese lost decade"
Can the deleveraging process be stopped through fiscal interventions?
Michael Pomerleano, FT July 10, 2009
The standard orthodox prescription suggested by Martin, Krugman and others is to contain the systemic banking sector crisis with a set of comprehensive policy measures that include a rigorous assessment of major banks’ balance sheets, removal of non-performing loans from banks’ balance sheets, and banks recapitalisation.
Virtually all the analysts point out the spectre of the Japanese lost decade, and applicable lessons for the recent US crisis.
In America, Zillow Real Estate estimates that the downturn in home prices has left about 20% of homeowners owing more on a mortgage than their homes are worth. We are in a vicious cycle, with more houses getting foreclosed and coming to the market, leading to further price declines.
A similar deleveraging process has to take place in commercial real estates, such as retail.
Deutsche Bank has recently released sobering estimates regarding the prospective losses in commercial real estate.
Equally, in light of the lost real estate and equities wealth, the household sector has to deleverage. Defaults in consumer credit are likely.
Michael Pomerleano
The devil is in the details: Financial information and systemic problems
Asset Price Bubbles
The Implications for Monetary, Regulatory, and International Policies
Edited by William Curt Hunter, George G. Kaufman and Michael Pomerleano