Posted on 10/02/2002 10:53:14 PM PDT by BlackJack
Only days after Japan's foremost economic reformer was given a free hand, the euphoria about the chances for real change is waning.
Heizo Takenaka, appointed financial services minister on Monday as well as keeping his job as economics minister, has kicked off a top-to-bottom review of banking policy.
But while investors are sick of the trillions in bad debts crippling the banking system and want reform, they are also scared that the pain caused by any cure could be unbearable.
The result: a mass selloff of banking stocks on Thursday, driving the benchmark Nikkei down below the key 9,000 level to 19-year lows as fears of a 'hard landing' grow.
By 0500 GMT, the Nikkei was down 0.75% or 67.85 points at 8,981.48.
Global selloff
Not all the declines could be put down to concern that the government will force banks to accept public funds in exchange for more honesty about their problem loans.
Heavy falls on Wall Street overnight had accompanied bad news from a string of companies, including chipmaker AMD which warned of rising inventories and falling sales - a worrying echo of the situation as the tech boom turned to bust two years ago.
The Dow Jones index had ended the session in New York down 2.3%, with the tech-heavy Nasdaq Composite down 2.1%.
But the main influence was undoubtedly the banking worries, exacerbated by news that former central banker and key reformer Takeshi Kimura is to join Mr Takenaka's new banking task force.
Of the four biggest banks in Japan, the largest - Mizuho - and the smallest, UFJ, were worst hit by the selloff.
Both fell the full extent of their daily limit, or about 15%.
The extent of concern about Mizuho and UFJ was demonstrated by the fate of shares in the other two big players in the banking sector.
Shares in Mitsubishi Tokyo Financial Group and Sumitomo Mitsui both fell by much smaller amounts.
I do know this. If the stock of these companies and banks were really any indication of their true worth, or even their projected worth, most would have all gone out of business and be bankrupt by now. Traditionally, very few companies could sustain a 40-60% loss of their worth and continue to operate. That tells us there was a huge bubble ... it's just a matter of how big it really was and how close the current conditions come to setting it srtaight IMHO.
I've got an idea! AMD should sell a buttload of chips to Intel, and Intel should sell the same amount to AMD! Presto, instant profit!
When markets behave like this the bad news begins to feed upon itself. The stock buying public has lost it's shorts. Worse than that they have lost their nerve. It would take a total lunatic to buy in at these levels. The wheat and the chaff were separated around 500 DOW points ago, and about 1000 NASDAQ points ago. The business reporting community hasn't covered a positive aspect of business in what seems like months. I'm thinking there may have actually been one or two out there somewhere. Who knows.
Remember that quaint little phrase that we were sold on during the 80s and 90s? "Dollar income averaging" was stuffed down our throats until we finally accepted that nothing else made sense. If the market drops, just keep those retirement contributions flowing. When it drops you're buying bargains. Well I've been buying bargains since around March of 2001. For the good of the nation, I'd like to think I was the only raisen on the grapevine, but sadly I've had lots of company.
Those who know far more than I do about the markets think we're nearing a bottom. For the life of me I wish I could have confidence in those greater minds. I don't like what I am seeing. The water in the bay seems strangely still. The tide is strangely low this evening. Is there a tidal wave in our near future? Can anyone state without a doubt that there isn't. That is a major problem for a market who's buying public has seen one too many storms in recent months, washing more profits and value away.
I don't like the rumblings in Japan. The world economic system is already experiencing enough problems. One more domino falling is not going to help.
At a time when all this havoc is going on in the world's markets, the World Bank has determined it's a great time to facilitate nations declaring bankruptcy. Now the only market systems that generated energy into the world's economic system are going to be taxed more, making them less stable. Conspiratorialists should love this. I'd probably get a pretty good kick out of some of their thoughts these days.
Just for the record, if Greenspan raises interest rates anytime soon, they can consider me on board.
Strangely enough, almost the exact amount by which the Toon administration cooked the economic books for its last two or three years.
BUMP
Closing failed banks is the right thing to do, and long overdue. It is also, however, contractionary in the short term if done alone. It looks like they will finally go ahead and let the big failed ones fail, without any "too big to fail" nonsense shielding them anymore. They ought to accompany such moves with public bailouts of the better ones (in return for changes in management and coming clean about accounting games etc), with monetary stimulus by the central bank (printing more money), and with tax cuts. The other measures would offset the short term macro damage from closing the old banks, and allow the clean-up to proceed.
Understand, the banks have been broke in all but name for quite some time - in the sense of unable to meet Basel capital standards for international banks except through accounting games. They have been protected by regulators afraid to let them fail, because afraid of the overall economic damage it might cause, and because of inside dealing between the politicians and regulators and the old bankers. They wanted to wait for something to save them, or to use public money to cover their old mistakes with "no strings attached" bailouts. Pay us off with taxpayer money or we will fail and take everything with us, that was the threat. Looks like this guy is calling it.
You are right that it won't be fun, but going slow on loan liquidation will not help any of it. Banks will have to be closed, their desositers paid off with public money, their stockholders wiped out, collateral of bad loans seized, the assets sold to the highest bidder. That will spread economic pain well beyond the banks - but it will also get assets out of the hands of the walking dead and create actual prices for assets, with transactions possible. Right now there is simply no trading e.g. in land or most real estate, to maintain "just pretend" values in mortgage appraisals, etc. The government and central bank should help cover the short term contractionary effect of this by printing money and cutting taxes. But clean up the mess they now must, and fast. The luxury option of a long and gradual liquidation is no longer available. They blew 10 years already...
...Bert, my concern is that Japanese banking problems will eventually spread to the U.S....I only have one A+ rated large bank in my area [Mercantile Bank] and I just got back from talking with them....rates of return are pretty lousy these days so I figure I might as well get a lousy return from the strongest bank I can find...and besides, my MM account at my brokers is not FDIC insured....the bank is. Never thought I would be thinking this way.
Good luck to everybody!
Stonewalls
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