Dogs and Demons_ Tales From the Dark Side of Japan - Kerr [41]
A massive financial meltdown of the sort that had been taking place slowly in Japan over seven years happened within a few months. Japan's banks, whose loans to the region were four times those of U.S. banks, are writing off tens of billions of dollars of bad debt. The results for Japan, however, are not entirely negative, for while the banks lost heavily, Japan's manufacturers benefited from the Asian crisis to snap up businesses and properties at bargain prices. Much is at stake in MOF's new offensive in Asia. Japanese banks and stockbrokers are in such trouble at home, and have lost so much business in the United States and Europe, that if their Asian policy does not succeed they may languish permanently as second-class citizens in world finance. «What's left if this fails?» asks Alicia Ogawa, the head of research for Nikko Salomon Smith Barney. «That's a good question.»
Meanwhile, what about the size of the stock exchange? In 1989, the New York and Tokyo stock markets stood very nearly equal in market value (Tokyo's was slightly larger). Eleven years later, in August 2000, the New York exchange had reached a total capitalization of about $16.4 trillion; Tokyo's had $3.6 trillion, making it less than one-fourth the size of New York's. Even more sobering, while Japan's OTC market for emerging stocks fizzled, NASDAQ grew to be a giant in its own right. Indeed, NASDAQ, with a market cap of $2.9 trillion, came within striking reach of the Tokyo Stock Exchange; when the TSE dipped in June 1999, NASDAQ even surpassed it! Together, monthly turnover at NASDAQ and New York exceeded Tokyo by eleven times.
One of the more puzzling aspects of post-Bubble Japan has been the unwillingness to reform a market that has obviously failed. By 1996 it was clear that drastic changes would be necessary, and MOF came up with the idea of a Big Bang, a deregulation modeled on the market-opening of the 1980s in London, when the «Big Bang» sparked dramatic growth in the London financial world.
The problem is that Japan's banks and securities firms rely for their very life on unreal values. Like Japan's rural villages and their dependence on dam building, the banks are hooked on the narcotics of these unreal values, and kicking the habit will bring about severe withdrawal symptoms. Deregulation in Japan, scheduled to take place over several years starting in
1999, has turned out to be anything but a Big Bang. Speaking on the subject of Japan's reforms in 1996, Sakakibara Eisuke, the director of MOF's International Finance Bureau, announced, «We bureaucrats are giving up all of our power.» This was followed, according to The Wall Street Journal, by «a quick outline of how Mr. Hashimoto's Big Bang program would unleash market forces. But then Mr. Sakakibara made an important qualification. 'Of course,' he said, giggling, 'we can't allow any confusion in the markets' – a phrase bureaucrats often invoke to justify a go-slow approach to reform.»
The go-slow process began immediately The insurance industry, due to open to newcomers in 1998, won a reprieve until 2001 – or later. The Ministry of Finance announced that banks must set aside capital against bad loans under a system known as «prompt and corrective action» but quickly began to water down the standards, phasing in the rule piecemeal, applying it first to large banks and only later-if ever-to small banks, where most of the trouble lies. As Japan entered the twenty-first century, the hype about the Big Bang had died out, and it was consigned to dusty shelves as just another government report. It was business as usual in Tokyo.
This brings us to a striking feature of Japan's post-Bubble trauma: paralysis. Instituting a real Big Bang is simply out of the question, for the whole edifice of Japanese finance might crumble if MOF allowed economic rationalism to infiltrate. It has been said that the Bubble losses were not as severe as they seem because they were merely «paper losses» – but for Japan, paper losses are a serious issue because the very genius of MOF's system was