Those Who Forget the Regulatory Successes of the Past…End up Like Japan

My first column showed why the theoclassical attack on regulation is the leading reason why we suffer recurrent, intensifying financial crises. This column explains why the attack on regulation impairs our recovery from these crises by contrasting two polar cases: the U.S. response to the S&L debacle and Japan’s response to the collapse of the twin bubbles (real estate and stock). At the end of the 1980s when it became necessary to resolve the S&L debacle, Congress created an authority, the Resolution Trust Corporation (RTC) and budgeted funds for the resolution. The regulators knew that the losses were overwhelmingly due to bad assets and fraud and would be borne primarily by the public—with a …