hmm I think we disagree. The Japanese did exactly what you proposed in 1990/1991/1992. Nothing. In fact, they failed to admit until much later that they were in trouble at all. It didn't do them much good. They wanted to just let the "market clean up itself". It didn't. Banks didn't pull loan lines on non-performing creditors. They didn't want to push 40 year long corporate customers into liquidation because they would lose their face. Banks stopped foreclosing on real estate assets "until the markets recover", hiding toxic assets and trying to avert their own bankruptcy. Insurances and banks tried to sit out the problem; just making it worse. The "free market pain machine" works great when markets are rational and efficient; it ceases doing its magic when participants are irrational (e.g. not declaring bankruptcy, not liquidating non-performing loans, unwilling to buy "good" debt etc.) as the market is broken and becomes inefficient. Where does this "Let them all fail and let the free market work its way, it will clean up the mess. Look at Japan!" urban legend come from? Jim Rogers?
US banks would fail if we let them, Lehman did. We don't have the Japanese culture here that existed in 1990. Do you really think Citi and AIG would be able to just sit there and wait?
Krugman claims without fiscal packages Japan would gone into depression, friedman claims japan is proof monetary policy is more important than fiscal policy, austrians like Rogers claims japan is evidence that you ought let the system collapse or things stagnate for longer, the communists claim japan is proof capitalism is a failure. Everybody see what they want to see
Daal, good point. I guess we all look at evidence through our own filters and accept what fits with our subjective perception of reality and dismiss what doesn't. Human nature.
ByLoSellHi, You actually managed to initiate a thread that didn't dissolve into the usual ET madness! To me you are god.