Beware the lair of the seiya

Most of the comparisons to the current economic crisis are to the Great Depression. Understandable, because everyone around the world has studied about that in school. I think I learned about it in 7th grade, somewhere around then.

Perhaps a more apt comparison would be to Japan’s crisis of the late 80s. But this doesn’t show up in many textbooks, so let’s start with a little history first.

In the early 80s, Japan was the rising star. Led by electronics (e.g. Walkman) and automobile (e.g. Toyota) exports, Japan rose from the rubble of its WW2 occupation and reconstruction. Growing exponentially through the 60s and 70s, Japan became the second-largest economy in the world. It was just a matter of time before she would pass the US and become the dominant economy.

The stock market soared. The Nikkei 225 stock index went from 10,000 in 1984 to a peak of 38,916 in 1989. Confidence was high, and banks would lend money to anyone with a pulse and a plan to develop real estate.

Why not? Real estate prices can only go up… right?

You can probably see where this is leading. I’ll continue this in the next post.