Henry,
The Japanese banking problem, as I understand it, is the result of a strong cultural tendency by the Japanese to regard business in somewhat feudal terms. Banks sought pledges of loyalty, or allegiance, from firms when lending, trying to 'lock in' an affinity of borrowers. To strengthen these ties banks in turn purchased shares in their borrower's firms. This not only made them lenders, but owners of note in these firms, and often board members.
In good times such an arrangement can be quite beneficial. Firms are well understood by their Lender, who can respond with needed capital at opportune moments. Good business not only profited banks with strong loans but increased earnings through rapidly increasing share value. All benefited.
However as the economy turned the concepts of affinity became a deep problem. Banks were faced with a broad range of clients who showed weakening positions and the need for liquidity. Failing to aid these clients would prove a double edged sword, as not only the loans would need to be written down but the shares in the firm, long overvalued would have to be written down as well.
Naturally banks balked at this. It was not just a matter of economics, it was a matter of maintaining the affinities which they had worked so hard to build. (Perhaps the Samurai ethic still runs deep in the families that turned from warrior knight to business magnet during the New Meiji Restoration.) It was a matter of honor. It still is.
The difficulty the Japanese have is how can all these people save face yet move on with a brutal process that will tear down the traditional system of doing business. Its easy to say they can't. Its almost impossible for them to admit they can not do both. Its almost as if the Japanese have to admit for a second time, that they have failed to master the western concept of power. It is a deep humiliation.
Enron is not a matter of honor, unless of course it simply shows how American business has degraded the concept to mean 'anything that put a nickel in your pocket'. |
