Jim,
I am with Limtex on this one. Problem with Asia, especially Japan, is we don't know how much this built up wealth has already been drained over the last 8 years. The Japanese people just may not be aware of it yet. Unfortunately, there is so little information on the actual and reliable figures in Japan that makes it very difficult for us to accurately gauge the magnitude.
Having been involved with the RTC stuff here, I suspect that it may be very difficult for Japan to do the same. First, I don't think there are enough "good" banks left. As an example, if my memory serves me right, every S&L in Arizona failed during the debacle. If Arizona represented the entire US S&L industry, the RTC planned wouldn't have worked.
Second, what is the Japanese version of FDIC and, for those old enough to remember, the FSLIC? It is really surprising that other than that one bank in HK when the contagion started, I have not heard of any Asian bank rushes. Can anyone explain what would preclude a rush?
Third, all the major assets of Japanese banks, with the exception of US debt instruments, have gone down in value. This is above and beyond this reported US$500 billion bad loans they already have on the books. The pressure has been on Japan to start closing or just allow bad banks to fail. Is there enough money to pay off depositors? Who is going to be left holding the bag.
Fourth, how much domestic debt in each of the surviving Asian economies are at the edge of heading into the bad debt category. In the US, there is a banking term called ISF (in substance foreclosure). What that means is if the underlying security cannot really support the debt in value, the loan is ISF even though the loan is current. In HK, as an example, everyone who had purchased a home in the last couple of years has probably lost their down payment/equity. HK law does not financing in excess of 70% of home value. This means 30% of cold hard cash has disappeared, from savings. If the market condition deteriorates further, strong economies like HK may experience for the first time what the word "repo" means. With unemployment heading toward 4+%, a record high, I don't think we are far from that scenario.
Finally, I don't like these behind the scene maneuvers by the Bank of Japan and others, trying to control the Nikkei and the yen. What is the difference between their action and insider trading?
I can keep going on and on with all this pessimism. Would someone who has some strong optimistic opinions please post?
Ramsey |
