The “Jusen Problem”

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Abstract
Examines financial regulation and the resolution of financial institution failure in Japan by analysing how informal rules contributed to the collapse of Japan's home mortgage lending (jusen) industry and its resolution. The authors focus on this event in part because the “jusen problem” was the first of a series of crises in the Japanese financial sector, and it represents the paradigmatic case of financial regulatory failure that sadly still manifests itself in Japan today. As Robert Higgs has noted, ‘There is no way to substitute pure theory for a knowledge of history’. By getting to the bottom of the recent jusen history, one can understand much of what ails Japan today. Just as importantly, the authors present this case because it is an elaborate illustration of the dynamics between law and private ordering at work in a crucial industry.

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