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To: Ahda who wrote (2903)	1/5/2001 11:19:13 PM
From: Rolla Coasta	Respond to of 3536

Greed and fear from people drive most markets into tailspin. As you point out about the loan problems in Japan as well as in US, they are created by the greedy behavior of people in the new economy where money could be created with wild forward-looking speculation in boom time. As soon as the speculation looks unreal, the economy turns south, and when the market hits the bottom, fear from people emerges. When the unnecessary panic sets in with absolutely no buyers (even the government) come in unable to pay a dime in the stock market, people begin to rush to their banks and withdraw their money. However, the US economy is so unique and the fundamentals are still strong, especially when the government has big surplus in reserve. We don't need that unnecessary fear to put ourselves into terrible shapes. What I don't like is the fact that people who have bought Euro begins to talk down the US economy and create that unnecessary fear. All in all, the bottom is here, and when the FED begins to solve the credit issues in California, we will be fine. Look for more money influx to the US market. Good luck! Q

To: Ahda who wrote (2903)	1/6/2001 4:07:23 AM
From: hobo	Respond to of 3536

The derivatives I leave to you and hopefully you will give to me a site where I can understand that market better. troweprice.com numa.com numa.com numa.com numa.com That should get you started

To: Ahda who wrote (2903)	1/7/2001 5:08:39 PM
From: Henry Volquardsen	Read Replies (3) \| Respond to of 3536

Hi Darleen, I hope this doesn't come off as being flip a response but bad loans are like the poor in the Bible, they are with us always. There are always problem loans and these always become an issue in an economic downturn. You can't avoid bad loans, it comes with the territory. It is easy for critics to make snide comments about banker's being greedy but they become just as critical when banker's become too cautious. To me banking is really a pretty simple business. It is a game of percentages. The best credit analysts in town will still have losses in a downturn. I am not trying to dismiss the importance of loan quality. But to focus exclusively on loan quality when evaluating the strength of a banking system is to see less than half the picture. Liquidity management, capitalization and return on assets are also very important issues. It is healthy capitalization ratios that give a bank its real strengths and allow it to ride out the inevitable periods of deteriorating asset quality. The Japanese banking system in the 80s was poorly capitalized. Notoriously so. The Latin American and emerging market debt problems of the 70s and 80s had shown the international banking system was badly undercapitalized. The BIS led a global effort, with the support of all the major central banks, to impose tougher and globally uniform capital requirements. The Japanese banks had had the lowest capitalization ratios and had the most work to do. In addition the BoJ rules allowed unrealized gains on equity portfolios to be counted towards capital. So not only were they thinly capitalized but a big chunk of what capital they had started to disappear as the equity markets declined. Japanese problem loans were more than just external loans. The Japanese also had a real estate bubble to go along with the equity bubble. The problem with bad real estate loans were much worse than the external loan problem. The legal and regulatory issues in Japan that exacerbated the bubble on the way up and exacerbated, and still complicate, dealing with the problem on the way down are complex, mind boggling and would probably bore everyone needlessly. But the issue of deteriorating loan quality was largely a domestic issue. In fact there are some who would argue that the Asia wide credit problems developed as the continuing credit problems in Japan and the need to comply with the tougher BIS capital requirements forced Japanese banks to reduce the easy liquidity they had been providing the rest of Asia. There were also big issues regarding the liquidity management and return on assets. I'll try not to bore you too much with this but give one example of where this became a problem. As profitability suffered the Japanese banks were looking for low risk profits. One source they found was buying high quality eurodollar floating rates notes. The returns were very thin, as little as an eight over libor but they bought the assets on the assumption they would be able to fund at libid. Unfortunately as Japanese banking system continued to suffer they were gradually excluded from the wholesale market and forced to fund at libor plus. This was the infamous Japan premium. The notes had multiple year maturity and they were now funding at negative spreads. The loans never went bad. The problem was low return on asset criteria and bad liquidity management. So when we compare the current US banking system with the post bubble Japanese banking system the above issues are what we need to look to. The US banking system, under the close supervision of the Fed, has built a strong capital base. The strongest it has been in decades. In addition the Fed pays very close attention to return on assets criteria. I often joked that the fastest way to get fired at a major US bank was to do a $10 billion dollar deal fully match funded with AAA credit and no liquidity risk for a locked in 25 b.p. per annum for ten years. $25 million a year profit almost risk free but it would destroy all the ratios and get the Fed on your case. This is not to say credit quality won't deteriorate in a recession and cause problems. But the capitalization levels are strong. The US banking system is unlikely to be crippled. In contrast the Japanese banking system was in very tenuous condition in the late 80s. The bursting of the bubble and the resulting economic slowdown worsened their already risky condition and this greatly extended the duration of the slowdown. Henry