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Non-Tech : Derivatives: Darth Vader's Revenge
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To: Worswick who wrote (44)9/7/1998 11:32:00 AM
From: Henry Volquardsen  Read Replies (3) of 2794
 
Good morning Clark,

You are going to make me bookmark the Asia forum aren't you? ;)

I don't think Japan is quite broke yet. They still have a tremendous amount of assets both domestic and foreign. Yes they have losses that haven't been fairly reported but I don't think they are enough to wipe out the system. But even if the losses are large that doesn't not arguing to do nothing. If they can't come up with any money to bail out the banks, fine. Then it is all the more important to force the banks to recognize their bad assets and write them off so the system can start getting an idea of how many assets they actually have. A banking crisis such as the one Japan currently has causes two problems. One is the obvious financial problem. The second is the drain on the management system. The bank spends its time focusing on bad assets and not on moving forward. This translates into a credit crunch as banks focused on managing bad assets become to conservative when confronted with new business. Japan has to do something to gets banks out of this funk, even if it means writing off assets.

Also in the other post you refer to GICs. The people who lost money managing GICs are the ones who failed to recognize that it has option characteristics and needs to be managed in that way. GIC writers who managed it correctly did fine. Those that wrote them and did not manage them got into trouble.

Henry
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