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Non-Tech : Derivatives: Darth Vader's Revenge -- Ignore unavailable to you. Want to Upgrade?

To: Bobby Yellin who wrote (107)	9/18/1998 8:59:00 AM
From: Worswick	Respond to of 2794

Good morning to you. (9.19.98) The Economist, "...Standard & Poor's, an American credit-rating agency, said that Japanese banks' bad and doubtful loans may add up to 30% of the country's GDP". A further snippet from an article on the history of the American Depression, "...In 1930 American banks began failing. The Fed let them, again not out of neglect but as a deliberate act. Its policy was to insist on collateral before it would help out, but the kind it wanted (commercial bills) the banks didn't have. Before the Fed was created in 1913, the banks had had their own clearing-house arrangements for helping each other resist runs; now, with those arrangements all but defunct, the banks looked to the Fed to do the job, and nothing happened. As the crisis of confidence spread, more banks failed, and then more. By 1933 more than 11,000 of America's 25,000 banks had failed. As people rushed to turn bank deposits into cash, the money supply collapsed." And a bit more perhaps..from the esteemed Mr. Orlin Grabbe. "Like the Black Death, the disease of hubris has spread everywhere. Robert Liton, director of economic studies at Brookings, and Anthony Santomero, director of the Financial Institutions Center at the Wharton School, convened a little conference of academic scholars and market practitioners, and now inform us: "A correction may come--and may even be in process--but a repeat of the hair-raising events of 1987 is highly unlikely" (Wall Street Journal, July 28, 1998). Ibid. aci.net The quote from Shakespeare at the end of the piece is worth subscribing to SI for.

To: Bobby Yellin who wrote (107)	9/18/1998 10:11:00 AM
From: Worswick	Respond to of 2794

Frrom the Fleckenstein site...."Japan's bank debt downgraded... S&P downgraded Japanese bank debt. I have said before that one reason the Japanese haven't addressed their problems, was because they were too big too handle. Now it looks like some of the rating agencies are starting to figure that out. The Japanese bad-debt problem appears to be approximately $1.8 trillion, or 30 percent of GDP. To put that in perspective, it is about ten times our S&L problem of the early '90s. Our S&L predicament was about 3 percent of GDP at the time, and Mexico's problems were about 6 percent of its GDP. I think this is one of the main reasons why the Japanese haven't faced the music.

To: Bobby Yellin who wrote (107)	9/18/1998 10:40:00 AM
From: Henry Volquardsen	Respond to of 2794

The markets will be skeptical until they get a clear picture of the details and wht the impact will be. I, on the other hand, am incredibly excited about the potential for this. I posted on the Asia Forum the other night that this tentative agreement appeared to be in the works. If this is what I believe it will be, and what that article indicates, this will involve the temporary nationalisation of troubled banks. This will get around the tremendous resistance the Japanese electorate has shown to using public money to bail out the banks. Their main objection has been to bailing out the wealthy bankers that caused this problem in the first place. Under this plan those bankers will be essentialy wiped out and it is unlikely they will receive anything for their shares. This will mollify the electorate. While nationalised, Japan will inject funds to reliquefy the banks prior to selling them back to the private sector. This would be a Japanese version of the RTC. Once reliquified and under new management it would be hoped these banks would start lending again and restore some vigor to the Japanese economy. As the article says, the devil is in the details. The market will remain skeptical for a while. But I am very hopeful that this may be the first move in the right direction that we have seen for some time.