Monday, May 25, 2009


I learned a new term today, evergreening, in an post about Japanese banks. The author, James Surowiecki asks why the Japanese banks were not able to earn their way out of trouble in the 1990s and his answer is that they evergreened:
The real answer is that Japan’s banks kept rolling over bad loans to weak borrowers. As this paper by Joe Peek and Eric Rosengreen shows, during the nineteen-nineties, Japanese banks constantly “evergreened”—they kept extending additional credit to companies that already had loans with them. By extending credit, the banks enabled weak corporate borrowers to keep making their interest payments, and to put off bankruptcy.
Bankruptcy is an underappreciated but necessary component of a market economy.

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