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To: Henry Volquardsen who wrote (931)	10/25/1998 6:44:00 PM
From: TimbaBear	Respond to of 3536

Thank you for taking the time to reply....I too, thought that the Japanese government would not buy the shares but only take-over the insolvent institutions, but something I read recently (please forgive me, as I cannot recall where) indicated that, in some situations, the government would also purchase the shares....I hope your interpretation is correct as this would only be another opportunity to exercise "cronyism". "Defensive underwriting" can be almost as lethal as loose credit standards....I experienced here in the US as a mortgage loan officer after the S&L bailout....difficult to get an underwriter to approve a loan after they have been hammered by regulators after a bank failure, and the experience gets spread to underwriters who were never involved in the first place.

To: Henry Volquardsen who wrote (931)	10/25/1998 8:44:00 PM
From: Sam	Read Replies (1) \| Respond to of 3536

An article from the BBC on Germany leaving interest rates unchanged. Can we get some thoughts on this thread about the last couple of paragraphs, i.e., on the Euro becoming a second reserve currency? Thoughts on the likelihood of this happening, the timing, and how it would affect US bond and equity markets if it happens. Or even how the attempt to make it happen would affect them. Thursday, October 22, 1998 Published at 16:53 GMT 17:53 UK Business: The Economy Why Germany won't cut rates Germans fear inflation more than the rest of Europe In the last month central banks around the world have had a change of heart. Deflation, not inflation, is seen as the main risk for the world economy. The US Federal Reserve Bank, the Bank of England, and the Bank of Japan have all cut interest rates to try to boost growth and prevent a credit squeeze. But Germany is the exception. The Bundesbank Council has again decided to keep rates on hold which means that rates in other countries closely linked to the German mark will also keep their interest rates unchanged. France's monetary authorities, as predicted, kept interest rates unchanged at their Thursday meeting. So why is the German central bank so much more conservative than the rest of the world? The main reason is that as the lead bank for the euro, the bank must balance the viibrant growth in southern Europe with high unemployment in Germany and France. Germany's legacy Germany's historical experience has given the Germans a special fear of inflation. It was the hyper-inflation of the 1920s, many believe, that led to the collapse of the Weimer Republic and the rise of Hitler. But also, the German economy has been relatively robust this year and companies with less dependence on financial markets for financing have been more robust in the face of financial turmoil. But the country's economy is predicted to slow down next year, leading to lower inflation and possible scope to lower rates. Although the Bundesbank argues that it is focused on domestic concerns, it is now the international situation that is the biggest constraint on any rate move. The approach of the euro European Monetary Union becomes a reality on January 1, 1999. By that time interest rates in all 11 countries which are joining will be aligned. Germany and France already have the lowest interest rates in the euro-zone, at 3.3%, and the expectation is that other countries will have to lower their rates to German levels in the next few months. Ireland, Spain and Portugal have all begun the process of cutting rates. But with their economies growing fast - Ireland is expecting nearly 10% growth this year - any further lowering of rates would be likely to push up inflation in the euro-zone. And that would mean those countries would have to make severe budget cuts to restrain growth, souring the euro's launch. The euro as reserve currency The other major uncertainty surrounding the launch of the euro is its role as an international currency. Many hope that the euro will become a reserve currency, challenging the dollar which is used for most international economic transactions. That could have many advantages in the long-run for Europe. But no one is sure if financial markets will trust the euro - and keeping interest rates stable will tend to make the currency more attractive as a safe haven while other countries cut rates. Of course, if the euro gets too strong it could damage exports and economic growth. And a real financial crisis might force the European Central Bank, which will take over from the Bundesbank on January 1, to act. But for the moment, the Bundesbank seems to be gambling on caution.