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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: Roger Mariner who wrote (19848)1/28/1998 5:27:00 PM
From: Paul Fiondella  Read Replies (1) of 42771
 
(Off Topic) The story behind the Japanese Finance Minister's resignation

So a couple of guys in the inspection division of the Japanese Finance Ministry were caught getting paid off by the banks. And then the Finance Minister resigns. What's the big deal? Hey isn't this normal business practices in operation in the Far East? And according to the Wall Street bulls, hasn't the Asian crisis peeked?

Call it Liquidity vs Insolvency.

In the financial scheme of things, there are several routes being taken to absorb all of the Asian bad debt.

In Korea the government is nationalizing private bad debt and seeking debt relief from the foriegn lenders. The relief is being provided in the form of the repackaging short term debt, which no one can pay back, into high interest long term debt --- saddling the country with an enormous debt burden. Liquidity is being provided by the IMF.

Its a balancing act. Absorb too much bad private debt and you end up like Indonesia where both the state and private sectors are bankrupt.

In Indonesia the government is threatening the foreign lenders with a debt moratorium---a polite way of saying we will not pay back the loans on your schedule. Indonesia wants the same deal as Korea. But foreign lenders see no Samsungs and Hyundais in Indonesia, all they see is a corrupt dictator. Lenders have a real fear that Indonesian debtors may simply deplete any remaining assets they can get their hands on and then spirit those funds off shore before the lenders can get their hands on them again. In fact this is already going on big time. Its the equivalent of hiding the car from the repo man or emptying the company safe containing all the off the books unreported cash into your Swiss bank account.

Indonesia is ready to implode. The rupiah isn't convertable and the government is threatening to repay foriegn lenders with rupiah. Watch out!

That brings us back to Japan. What's behind the resignation? The Japanese government has taken the road of lending cash to banks to provide them with liquidity and is preaparing to rescue banks. The danger of this is that you may be lending money to someone who is already broke. But how do you know?

Compelling borrowers to disclose their assets and liabilities in order to determine which companies should get more money and which should not is the job in Japan of the Ministry of Finance and its inspecters.

The banks are paying off the inspectors to hide the true state of their asset base IN ANTICIPATION OF MAJOR BANKRUPTCIES.

If you recall the large Japanese brokerage firm that failed recently was able to hide some $2 billion in bad loans from the government and the government only found out after the firm failed.

In fact it is in the interest of every Asian bank to hide the truth about its asset base in an atmosphere in which the government, the IMF, or a foriegn consortium of banks, will pick and choose who to save and who to sink.

Now here is the significance for us.

We are being told that the Asian crisis has peeked. We are not being told how many Japanese banks (heavy lenders to Indonesia incidentally) are insolvent. And the Japanese government --- about to pump $250 billion into the banking system doesn't know either.

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Roger, thanks for the kind compliment.
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