Reprise of Japan's problem: Absolutely, Zeev..you're timing is just off 1 to two months Zeev. The Big Kahunna! You are right!
For the best and simplest reprise of Japan's problem... something appeared today in the South China Post that might interest you...
For Private Use only
(C) SCMP
Tangled share structure snares Japan economy
By: BENJAMIN FULFORD
The cross-shareholding structure of corporate Japan is one of the biggest problems facing the country's economy.
Put simply, it leads to poor corporate governance and links the fate of the economy to the stock market index.
A low index towards the end of the financial year this month is expected to cause an avalanche of bankruptcies.
The heart of the problem lies with the country's banks. Not only have they finally been forced to stop lying and admit they have more than 77 trillion yen (about HK$4.71 trillion) worth of bad debt, but they are also facing a situation in which their capital base is being eroded by a falling stock market.
A large part of the banks' capital consists of their massive holdings of shares in companies they lend money to. When the stock market is strong, the banks have lots of capital and so can lend lots of money. When it is weak, they have less capital so they have to cut back on loans.
While the economy and stock market moved ever upwards, the banks seemed to have an endless ability to lend to any company, no matter how badly managed.
Even when the financial bubble burst in the early 1990s banks said they were not worried, because they had more than 50 trillion yen in these "hidden profits" from their stock holdings.
As the bad-loan problem continued to fester, banks began to take profits by selling their stock holdings to themselves at the market price and recording the difference from the original purchase price as profit. The result was that banks' "hidden profits" dwindled to the point that many have "hidden losses" instead.
This year many banks are expected to be forced to admit to losses on their stock holdings if the benchmark Nikkei-225 Index closes at around 17,000 yen on the last day of the financial year. That in turn will force them to cut down on lending, therefore affecting the performance of the entire economy.
So, the banks are expected to be forced to pull the plug on massive numbers of corporate zombies that have been kept alive for years by a combination of fancy accounting and transfusions of bank money.
The crucial date in this process is March 31. The stock market average on that date determines the level of "hidden" losses or profits for the rest of the year.
Thus it is that this year, once again, as the financial year-end approaches, we are witnesses to an incredible display of accounting acrobatics and government-led attempts to lift the stock market.
However, this year the situation is far worse than before. Banks have been so hard pressed to shore up their capital they have been selling their stock holdings outright. Corporations have reciprocated by selling bank shares.
As a result, net stock selling by corporations and banks has been running at close to 300 billion yen a month for the past several months.
While corporations and banks have been locked in this vicious cycle of selling each other, the slack has been taken up, to a large extent, by the government.
It is using money from the postal savings bank and public pension funds to prop up stocks.
It is also dropping hints about "new economic stimulation measures" every time the stock market falls.
The government has even decided to prop up bank capital with public money in the vain hope they will waste it by keeping brain-dead companies on life support a few more years.
The result has been the roller-coaster ride in the stock market in recent months. Every time the government boosts the market, banks and companies push it back down by dumping each other.
In the long run, Japan would probably be better off if the government put an end to this charade and let the markets do their thing.
Inefficient firms would perish and make room for new growth, and over time, the end of cross-shareholding would lead to fundamental changes in corporate governance.
The day would also come when management could be forced to resign by shareholders and when hostile takeovers become a possibility. |
