PNG, You Were Right!greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
On ABC's Nightline tonight was a full report about Japanese "Zombie" (dead men walking) banks. It was very interesting, and so many of the things they said were exactly what you had told us, PNG. The transcript should be out soon, and I will post it for you to see.
-- Gayla Dunbar (firstname.lastname@example.org), November 21, 1998
Correct me if I'm wrong here, but it seemed ABC's Nightline referred to a chart that means it would take 1/4th of the income from "every" single citizen in Japan just to climb out of their monetary hole. (With nothing to show for it other than starting at ground zero).
PNG, thanks for the advance perspective.
-- Diane J. Squire (email@example.com), November 21, 1998.
Hat off also to Paul Milne, c.s.y2ker, who's bulldog tenacity in fereting out the truth of the banking fiasco has been nothing less than spectacular. Thanks for the advance warning guys...
-- a (firstname.lastname@example.org), November 21, 1998.
You mean Milne FINALLY got one right?
-- Anon (email@example.com), November 22, 1998.
Gayla, who's PNG and can you post a link to his posts about this? I watched Nightline too with amazement and fright, as I remembered reading bits and pieces on several forums as well as here on things happening here very similar to what is happening in Japan. I kept telling my husban how ironic that they reported on Japan's economy as if our own banking system was totally diferent and above thiers.
-- Chris (firstname.lastname@example.org), November 22, 1998.
PNG (aka: Pacific Natural Gas 8<)) is a very well-read observer and contributor from Japan. He's given a lot of very useful insights into the "cross-culture" sides of Y2K from behind the Japanese economy.
Need to get hold of him? Ask in the "New Questions" section - several of us have just posted a question out there with his initials on it somewhere in the title. When time permits, you get an answer.
-- Robert A. Cook, P.E. (Kennesaw, GA) (email@example.com), November 22, 1998.
Yes second Robert there, PNG is brilliant. Please where are you, why is there this financial debacle, what will it mean for us.
-- Richard Dale (firstname.lastname@example.org), November 23, 1998.
The transcript is finally out. Here is the link:
-- Gayla Dunbar (email@example.com), November 23, 1998.
Thanks for the information, Gayla. I've been pretty busy lately...life getting in the way. After a quick review of the transcript, here are a few comments I'd like to add:
1) The amount of debt quoted is $1 trillion (US). Not true. The debt is $2 trillion (US) and will climb higher as more loans become unrecoverable from foreign and domestic default. The bankruptcy rate in Japan is now the same as during the Great Depression. The interest payments on many yen loans made to Asian countries by Japanese banks are due next month and 1stQ next year (Japanese 4thQ). As of today, I rate the probability of (virtual) default at 95%. These are only the interest payments... The Japanese banks will try to renegotiate terms and extend other (uncollectable) loans to keep from having to report these enormous loans as unrecoverable. This is the purpose of the Japanese goverment extending loans to Asian countries now. They give the Asian countries the cash to give back to the Japanese banks as interest payments. Image is always more important than substance. It doesn't change the fact that the banks are essentially bankrupt.
I don't know the credentials or location of Professor Calomiris, but I suspect he is no longer in Japan and uses only published material and academic contacts to develop his analysis.
Let's put an image to this debt. If you stack $100 bills on the floor, $1 million is just under 4 feet tall. If you don't believe me, try it in your living room tonight. $1 billion is about the height of four (4) Sears Towers (Chicago) stacked one-on-top of each other. $1 trillion is about 4,000 Sears Towers stacked on top of each other. $2 trillion is a stack of $100 bills reaching about 1,500 miles into space. $2 trillion is a stack of $1 bills about 60% of the distance to the moon.
2) I believe it is fundamentally important to remember that banks and goverments have no money. The depositors and taxpayers gave this money (in good faith) to these institutions. Who guarantees bank deposits? The government. Where does the government get the money to guarantee the deposits? From the depositors and taxpayers again. The banks pay a portion of deposits to the government as a premium for the insurance. The same people must pay again.
3) Fiduciary responsibility. Japan has no enforcement of fiduciary responsibility. A person holding up a convenience store by knifepoint will receive a harsh prison sentence for stealing the equivelent of $100. A Japanese prison is not a pleasant experience. Prisoners sit cross-legged in the center of their cell floor all day and are not allowed to speak or lean against a wall. All white-collar sentences are suspended. No business executive goes to prison for stealing or embezzling money. The lesson learned is that it is better to embezzling (steal) millions than steal hundreds. There is no risk or responsibilty. A company chairman will resign in a tearful news conference to take responsibility for a financial scandal, only to be immediately rehired as an "advisor" with the same salary and responsibility. This lack of fiduciary responsibility means that covering up and lying about financial mismanagement has no risk... only reward if you don't get caught.
3) What's being done to fix the problem? Nothing. The debts are the result of the same circumstances that created the S & L crisis in America. The Japanese have been hiding these debts for years. The ultimate in denial. The Japanese version of the RTC will take years to yield any results. The temporary fiscal stimulus packages do not address the debt. The packages will require the local governments to ante up money for public works projects. The local governments are broke. The attempts to bring international accounting standards are only window-dressing. The Japanese "Big Bang" will take on a unique Japanese style that will only frustrate the recent crop of American and European financial companies "thinking" real opportunities exist. The Japanese are masters at delay and obfuscation. They are still debating over the semantics of how to tell China this week that they are sorry about any alleged events that may have happened during war - without actually apologizing...
4) Are the Japanese banks, government and companies financial idiots? Let's consider the debts from the 1980's as spinning plates. Remember the circus performers spinning plates on those slender sticks? How many can they keep spinning at one time? The U.S. and Europe were able to spin only 10 plates for about 2 years before they had to take action (S & L bailout). From the Japanese perspective, they are 32.0216 times more clever and efficient than Americans and Europeans - they have been able to spin 40 plates for over 8 years.
Individually, the Japanese people are far from being idiots; however, the Japanese collective society and dogmatic culture is partly based on the idea: If I don't see it - it doesn't exist. Japanese common sense and western common sense are opposing forces.
5) Next year, Japanese companies will be required to reveal the status of their pension funds (they don't really have pension funds per se, only cash used by the companies). In Japan, the majority of companies pay a lump-sum at retirement. Japanese baby boom years were 1947 to 1953. Most companies have mismanaged the pension money and will be unable to pay the promised lump-sum at retirement. They may not even be able to fund annuity type pensions because of the magnitude of these losses plus the current economic "Desession" (my word...I think Japan has one foot into the D-word already) is draining these funds from company coffers. There are no laws to protect or insure retirement money. This is a dangerous position, but asset management is getting more attention and interest now. One more log being added to the fire.
6) y2k. If Japan is still in denial about WWII, how deep is their y2k denial? "If I don't see it - it doesn't exist." "Image is more important than substance." From where I sit, 25 minutes from Tokyo, the Gartner Group is overly optimistic about Japan. I see big manufacturing problems next year. I think telecommunications and utilities (if fossil fuel delivery interruption is less than1 week) will be on par with the U.S.. Banking and transportation scare me to death.
I forsee opportunities for American and European complient manufacturing companies, especially LSI (Large Scale Integrated circuits), standard printed circuit board fabricators and precision machining companies, to offer contracted OEM manufacturing to Japanese electronics and other companies who will never finish remediation in time. There will be plenty of business available... if they know someone in Japan to contact...(hint).
Financial Prognosis: Japan is going to continue to delay, hide and do things the "Japanese way." No amount of foreign cajoling or pressure will increase of pace of action - never has and never will. Japanese banks are rapidly retreating from overseas operations. I do know that the spinning plates are slowing down...I just don't if the world economy can wait for Japan.
P.S. Robert and Richard (princes among men)...Perhaps thou art easily impressed.
-- PNG (firstname.lastname@example.org), November 25, 1998.
Thank you PNG , flattery will get you everywhere, yes another great analysis. Welcome back!
-- Richard Dale (email@example.com), November 25, 1998.
Thank you, kind sir,
Wouldn't the vaunted Japanses insistance on "Quality Assurance" and Total Quality Managenment type business philosophy's contradict their "cultural" preference for "saving face" and hiding such failures/impending failures? If the "customer satisfaction" is required, are they not worried about their suppliers/customers failing?
Also, interest rates were (I think) extremely low - becausee of favorism between business conglomerates/government/banks - does that help or disguise (postpone) the apparent disaster?
-- Robert A. Cook, P.E. (Kennesaw, GA) (firstname.lastname@example.org), November 25, 1998.