Sheila Bair confirms US choice of Japanese Model and damage to real economy it causes

In Gretchen Morgenson's NY Time's column, Sheila Bair confirmed that the US policymakers deliberately chose the Japanese Model for handling a bank solvency led financial crisis.

They chose to protect bank book capital levels and banker bonuses and put the burden of the excess debt in the financial system onto the real economy and society.

Ms. Bair also confirmed that there was and still is another choice.  Regular readers know this choice as the Swedish Model under which banks are required to recognize upfront the losses on the excess debt in the financial system in order to protect the real economy and society.

As Ms. Bair said,

“Our bailout strategies didn’t clean out bad mortgage assets, and we didn’t force banks to take losses,” she says. “We imposed no accountability and did no fundamental restructuring. We were Japan, and I think we have a Japan-like recovery because of it.” 

Exactly as predicted by your humble blogger.

Regular readers know the only solution to get us out of the Japan-like economic state is to adopt the Swedish Model with ultra transparency.

Having left the F.D.I.C. in 2011, Ms. Bair now works on financial policy issues at the Pew Charitable Trusts and heads the Systemic Risk Council, a private-sector organization that the Pew Trusts helped form, which is working on financial system fixes. 

“The balance of power has shifted too far in favor of large financial interests in Washington,” she said in the interview. “The bailouts, and the quantitative easing that continues, have overwhelmingly benefited the upper classes. Workers, homeowners, small businesses have by and large been left to fend for themselves.”

Please re-read the highlighted text as it is exactly what I have writing about as the consequence of pursuing the Japanese Model.