Dogs and Demons_ Tales From the Dark Side of Japan - Kerr [40]
One aspect of Japan's failure to keep in touch with reality was that the Ministry of Finance and Japan's banks and brokerage firms failed to acquire the technology used in financial markets elsewhere. This may be one of the most surprising aspects of the Bubble, for it runs against the common wisdom about Japan's alleged gift for high technology.
If debts need never be repaid and stocks produce no yields, what is the measuring rod of value? There was none, aside from Madame Nui's toad. In the 1980s Japan's securities houses, dominated by Nomura, towered over all competitors and many believed them to be practically invincible. But traders at Nomura and other brokerage houses did not learn the mathematical tools that Wall Street brokers developed in the 1980s, and that led to the complex computer trading and new financial instruments that dominate the market today. Since 1991, they have seen one long series of retrenchments, with Nomura consistently losing money, or barely scraping by in the United States and Great Britain. Daiwa cut its foreign branches from thirty to eighteen in 1999; Nikko reduced its overseas operations; and Nomura is closing foreign desks. By January 1998, Japanese securities firms had fallen completely out of the ranking for the world's top-ten bond dealers. Nomura made it only to No. 13; the other firms did not get into even the top twenty. And by then foreign brokerage houses were handling almost 40 percent of all trades on the TSE. In the fall of 1997, Yamaichi Securities, one of the Big Four brokerages, declared bankruptcy when more than $2 billion in losses surfaced in hidden offshore accounts. And then there were three. «Just as the U.S. brokers toppled England's largest securities firms, the same thing is happening here in Japan,» said Saito Atsushi, Nomura's executive managing director.
However, there was to be one last mission for MOF's financial machine to accomplish, albeit a suicide mission. MOF decided that it should expand into Asia, which it considered Japan's natural sphere of influence. Land prices had been rising in Thailand, Malaysia, and Indonesia for decades-all the old Bubble rules still seemed to apply there. So Japan in effect exported its Bubble to Asia, lending heedlessly to build office towers, shopping centers, and hotels, as was done in Tokyo and Osaka years ago. «We are just asset eaters,» says Sanada Yukimitsu, an associate director at Tokyo Mitsubishi International in Hong Kong. «The Europeans and Americans consider profitability, they manage their assets. If there is no profit, those banks just withdraw. But Japanese banks lend even when the price isn't so good.»
And lend they did. Asian countries modeled their markets on Japan: under the leadership of strongmen such as Indonesia's Suharto and Malaysia's Mahathir, governments set values, and told large investors what to buy, and they obeyed. From MOF's point of view, Southeast Asia was one last blessed corner of Eden that was still free of dangerous wild animals like P/E ratios and cash-flow analysis. From the mid-1990s on, Japanese banks doubled and tripled their loans to Southeast Asia, providing the lion's share of loans to Korea, Malaysia, and Indonesia, and more than half of all foreign money lent to Thailand.
There is an old Yiddish joke that asks: Question: What does the saying mean, Though he slips and falls on the ice, the Avenging Angel will still catch up with you? Answer: He's not called the Avenging Angel for nothing! Alas for MOF. In the fall of 1997, the Avenging Angel arrived in Southeast Asia waving the flaming sword of «real value.» The Korean, Thai, Malaysian, and Indonesian currencies collapsed overnight. Suharto and Mahathir watched in helpless rage as the markets, long used to obedience, went their own way: down. The mistake of the Asian nations was to lower the walls around their credit systems, something Japan would never do – hence when the crash came they could not control it