Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back.”

But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.

Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.

How can the reality and the image be so different? And can the United States learn from Japan’s experience?

It is true that Japanese housing prices have never returned to the ludicrous highs they briefly touched in the wild final stage of the boom. Neither has the Tokyo stock market.

When the talking heads speak of a decline, what they really mean is a loss of stock portfolio value. Or, more accurately, a decline in the prices of stocks, bonds, real estate, and other forms of capital. The wealthy abhor this potentiality because it would effectively destroy their wealth. While this concern isn’t altogether problematic (why shouldn’t they be self-interested, just like everyone else in the world?), the proposed solutions are.

Preventing “decline” is largely contingent on keeping capital prices afloat, which is itself contingent on leverage (which, it should be noticed, will be subsidized by taxpayers in some way), debt, and/or inflation. This is the only way. Capital asset prices are already significantly overvalued; the only way to keep it this way is to continue the policies that enabled this in the first place.

The only alternative is to let capital asset prices crash and then recover. This is the optimal strategy, in the sense of doing what’s best for the most people, for this strategy only requires non-intervention in the economy, which is unsurprisingly cheaper than intervention and bailouts. The reason why the talking heads never propose this is because the timeline for recovery is fuzzy at best.

Quite simply, once the market crashes and capital prices return to their pre-malinvestment valuations, it will be some time before those prices go back up again. This poses a problem to the wealthy employers of the talking heads, for said employers have spent their lifetime accumulating this imaginary wealth and, now that they are beginning to look at retiring, they do not want to see it simply vanish.

Therefore, the mainstream argument against decline—which is prevented only by bailouts and leverage—is entirely founded on the assumption that maintaining capital asset prices is desirable. Given the costs of doing so, and given that the result only benefit wealthy crooks, it seems clear that the best course of action is to welcome decline with open arms. This way, as is seen in Japan, living well will not simply be the privilege of the wealthy.

North American Securities Administrators Association (NASAA) – the oldest international organisation devoted to investor protection.

In consideration of the settlement, American states will agree to terminate their investigation of Credit Suisse’s marketing and sale of such securities to individual investors.

The ARS market involved investors buying and selling instruments that resembled corporate debt whose interest rates were reset at regular auctions, some as frequently as every seven days.

Market meltdown

They were sold as being as safe as cash but the market fell apart amid the downturn in credit markets.

Investigators have been trying to work out who was responsible and whether banks knowingly misrepresented the safety of the securities when selling them to investors.

In a statement from New York, the Zurich-based bank noted: “Credit Suisse neither admits nor denies allegations of wrongdoing.”

Eligible individual investors must have bought their ARS through Credit Suisse before February 14, it added.

The bank joins a growing list of major financial institutions – including Switzerland’s largest bank UBS – to reach settlements, with more than $51 billion targeted for repurchase, and state and federal penalties totalling an estimated $537 million.

“The industry is taking responsibility for correcting a problem they helped create, and that’s a good thing,” Cuomo commented in a statement.

“Return money”

“The fundamental goal has been to return money into the hands of investors, and that’s what these deals do.”

NASAA President Karen Tyler was also satisfied with the Credit Suisse settlement.

She described it as “another step on the road to recovery for thousands of Main Street investors who have been trapped in the auction rate securities meltdown”.

UBS last month announced a comprehensive settlement, in principle, for all clients holding auction rate securities at an estimated cost to the bank of $900 million.

It pledged to buy a total of $8.3 billion of ARS at face value from most private clients during two years from January 1, 2009. However, private clients and charities holding less than $1 million in household assets would be able to obtain this relief from October 31.

It said it would also provide solutions to institutional investors and agreed to buy all or any of the remaining $10.3 billion at face value from its institutional clients from June 30, 2010.

In July, UBS announced its intention to buy back up to $3.5 billion in auction-rate securities in the face of a lawsuit by Massachusetts’ authorities.

swissinfo with agencies

UBS, Switzerland’s largest bank, has similarly agreed  to reimburse shareholders

Andrew Cuomo, New York state’s Attorney General, “The industry is taking responibility for correcting a problem they helped create

NASAA President Karen Tyler  the Credit Suisse settlement.

She described it as “another step on the road to recovery for thousands of Main Street investors who have been trapped in the auction rate securities meltdown”.

UBS last month announced a comprehensive settlement, in principle, for all clients holding auction rate securities at an estimated cost to the bank of $900 million.

It pledged to buy a total of $8.3 billion of ARS at face value from most private clients during two years from January 1, 2009. However, private clients and charities holding less than $1 million in household assets would be able to obtain this relief from October 31.

It said it would also provide solutions to institutional investors and agreed to buy all or any of the remaining $10.3 billion at face value from its institutional clients from June 30, 2010.

In July, UBS announced its intention to buy back up to $3.5 billion in auction-rate securities in the face of a lawsuit by Massachusetts’ authorities.