Political Economy of the Financial Crises in Japan & the United States : A Comparative Study on the Bailout of Financial Institutions

Currently, the United States is suffering from a financial crisis. Japan also struggled with a financial crisis from the late 1990's to the early 2000's. What implications can be drawn from these crisis experiences of the two largest economies in the world? This paper examines, from the viewpoint of political economy, which elements are crucial in the use of bailout of financial institutions as a means to address financial crises. By analyzing these crises through the balance sheet of financial institutions at stake under the political economic condition of the advanced democratic countries, it became clear that taxpayers'/ opinion leaders understanding and market sentiment are the keystones for a successful bailout of financial institutions. This observation leads to the two central arguments of this paper as the implications of the Japanese and US crises : (1) There is a "learning effect" of Japanese financial crisis, which helped the US take quick move in addressing its crisis, an effect which should be crystallized into economics textbooks in case of future financial crises, and (2) It is significantly important that direct and swift actions are taken by the national leader and his/her secretarial organizations so that the bully pulpit is effectively utilized to overcome financial crisis.