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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Paul Berliner who wrote (1970)7/21/1999 11:19:00 AM
From: Henry Volquardsen  Read Replies (1) of 3536
 
Paul,

in the article that Lee linked aei.org there is an interesting comment.

In addition to the foregoing extraordinary combination of monetary and fiscal policies, the government initiated another effort, aimed at keeping small and medium-sized companies afloat. In October 1998, it began a program of loan guarantees. Banks that were preparing to cancel risky and defaulted loans to small and medium-sized businesses discovered that the Japanese government was prepared to guarantee loans that were extended for another six to twelve months. The government-guaranteed loan extensions carried no interest payments until the end of the extension period. Banks had little to lose by rolling over the loans, even though they knew they were unlikely to be repaid because many of the loans were used not for investments but to meet payroll and other normal cash-flow needs. Between October 1998 and March 1999, loan guarantees of 20 trillion yen (about 5 percent of GDP) were extended. In May 1999, the government announced plans to continue the program and will probably extend another 20 trillion yen
of loan guarantees into t he second half of 1999. This program will become inviable when the borrowers are unable to repay their loans and ask for more and the government has to acknowledge an as-yet-unacknowledged 20 to 40 trillion yen of increased liabilities.

Hmmmmm. Sounds like the government encouraging Japanese banks to postpone losses. In light of the Armstrong article you posted, I wonder if the FSA considers this 'subversive'? <g>

Henry
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