Robert,
we seem to have a tough time staying on the semi-eq subject but Japan is certainly worth a debate, being the biggest economy in the East.
There is a big difference between the Japanese bank crisis and the US S&L crisis. The US bail out, in the end, benefited the US economy. The RTC was essentially a special tax on the US taxpayers to finance and subsidize office buildings, R&D parks, industrial sites and many residential projects. The RTC absorbed the difference between a fair market value of these projects vs the construction cost. Many businesses today benefited from being able to expand by using up the capacity at reasonable prices. One example is QCOM. They expanded by over 1 million square feet at a price
The same holds true for a lot of junk bond investments.
Read S&L Hell for a good description of the S&L crisis and Den of Thieves for the net effect of some of the junk bonds.
In summary, even though many unfairly benefited or were hurt by the US S&L debacle, it was a closed game within the US economy.
Japan is substantially different. The Japanese banks have huge exposure from foreign corporations. If these loans are written down, not only does it hurt their own books, they are directly helping their potential competitors by cleaning up their books. When the RTC started liquidating properties in a massive scale, the simple principle of supply and demand drove down property values in the US until it reached equilibrium. Fortunately, the prices had already been knocked down enough so the gap was not huge. What is Japan's situation? If banks start to foreclose and dump non-performing assets on the open market, can the Japanese economy handle such pressure? My guess is no, resulting in the current no action/foot dragging strategy that the Japanese government had been deploying to date.
Further more, while corruption is somewhat accepted for a developing country like China, the scandals in Japan, the second largest economy, is quite a different story. It threatens the stability that, frankly, I am amazed by how minor the reaction has been. Can you imagine what would happen to the US stock market if one of the Fed Governors were caught selling Fed decisions to Citibank or JP Morgan?
Just a couple of cents.
Ramsey |
