Henry,
Interesting article hidden in the WSJ p.A17 this morning.
Indoneasian Banking Woes Get Worse
[I Paraphrase]
International accountant called in by IBRA to examine a clutch of troubled
banks has turnrd up large amounts of so-called loan repurchase agreements[repos].
As well as big bets on derivative products including exotic, high-risk
"roller coaster" foreign exchange contracts. These are tipically kept off
a banks balance sheet...the tab for bailing out these institutions will
be much higher the estimated. "The final condition will be much worse
then what might be obvious from the declared balance sheets," an
examiner said. "Nobody has a real good handle on it." It is not only a
matter of protecting the integrity of the banking system inIndoneasia,
butalso footing the bill for possible bogus transactions.
People who have combed through the books are struck by the scale of some of
the transactions, particularly multicurrency derivative instruments
maturing in 5 years or less, and large amounts of loan-repurchase
agreements. "They were very complicated instruments, I am sure they
did not know what they had." Looking forward at the creative practices
of these banks and the scale of loans to individuals beyond the legal
limits of law in INdonesia.....it has become a matter of degree.
"Looking at one or two or three of these banks is the beginning of it."
[End of paraphase]
Well, it is safe to say the Indonesian's learned the ropes from the
Japanese and USA. Mr Summers is now on record as warning the Asia problems
can spread to Latin America and other countries connected to Japan and Asia.
If Japan has used the same creative accounting methods the expected
and published shortfall could go much higher then the $300 billion that
has been announced. If the USA absorbed $100 Billion for the S&L (we
are a larger economy) and Japan recognizes $300 billion (and is weakened by
8 years of contraction/unsuccessful restructuring) and faces a deepening recession.
My Questions: At what point does the reserve balances of Japan and
the other accounting measures, become overburdeoned by the potential for
significantly higher problems of banking debt then $300 Billion..?
At what point will the international players look at Japan and say,
welcome to 1929, there is nothing more that can be done..?
The most remarkable statement in this article....an examiner said,
"They were very complicated" instruments, he says. "I'm sure they didn't
know what they had.".....These are the same examiners who went through and
Mexican banks, Poland and Bulgaria....
Chip
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