Zeev,
Sorry to be replying to an article over a week old, but I've been out of town and out of touch, trying to catch up. Futile, but...
You said that Japan can get out of their problems much easier than the US with the S&L crisis, and said "Remember that a yen in net tangible can allow lending of 12.5 additional yens. So close those banks that cannot meet minimum tangibles, protect depositors and creditor (but share holders) and let the stronger banks actualize (sell, even to foreigners) these assets and now they have money to put into the economy. It does take hurting stock holders (and of course the incompetent management) of the excessive risk taking institutions, and they need the political courage to do it."
Not that I understand everything written above (especially the first sentence, which is possibly the most important one, since it seems to imply some sort of leverage), but: (1) aren't the "shareholders" that will be hurt the other banks themselves? Isn't that part of the "Japanese" model, to have all of the companies interlocked in such a way that effectively they are one big happy [or unhappy, as the case may be] family? And wouldn't that lead to another downward spiral?
And (2) is there really that much held in reserve in these banks to "simply" clean up all of the bad loans? These loans went for buying property or building factories at values that simply aren't there any more (they never were "really" there, but nevermind that), and, as far as I know, the enormous "capital" of these banks includes carrying the loans as if these properties could still be sold at the inflated values, or the factories that were built were actually producing goods That could be sold in order to service the loans. Once the loans are marked to market, written off, wouldn't that still presumed "wealth" simply vanish into thin air, into bitsville perhaps?
Was it you or was it Clark or someone else who once said that the banks in Asia were like a group of men in a circle, each with their hand in the pocket of their neighbor, and each afraid to actually look in the pocket or to pull their hand out, since in their hearts, they know that there wasn't anything there? |
