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Japan: Views on Wall Street Crisis

The ongoing collapse, bail-out and buy-out of Wall Street investment banks, threatening a U.S. and possibly worldwide recession, has triggered no lack of debates in Japanese blogs on the country's strong financial connection with its overseas ally.

Barklays nears deal for Lehman U.S. unit
Photo by Flickr user conorwithonen

Michi Kaifu [海部美知] (known in Japan for her blog Tech Mom from Silicon Valley) writes at newsvine.com about the Japanese precedent to the current Wall Street crisis:

The demise of Lehman Brothers and Merrill Lynch reminded me of my home country Japan 10 years ago. Amid the post-real-estate-bubble mess, in 1997, Yamaichi Secirities, then one of the “Big Four” brokers in Japan, closed its doors. Long Term Credit Bank and Nippon Credit Bank wend under as well.

She refers to a Wall Street Journal article which discusses this precedent, noting that “career flexibility was not woven into [Japan's] social system yet” when the economic bubble burst 10 years ago in Japan:

In the end, many employees from those failed brokers and banks found jobs in other financial institutions. Some still had to go out and seek the opportunity in the new world. It is not an official story, but I have my own theory that this “spill over” employment issue caused a chain reaction in the form of “mobile phone boom” and pushed Japan up to one of the most sophisticated mobile countries in the world.


Tokyo Stock Exchange. Photo by Flickr user Goodimages

Economist and blogger Nobuo Ikeda [池田信夫] at Truth about Japan makes a similar observation in a post titled “Lessons of Yamaichi“:

The tragedy of Lehman Brothers and the following jump of interbank rates remind me of a similar event in Japan eleven years ago. Yamaichi Shoken, one of the Big Four security brokers, filed to close business in November, 1997.

Ikeda explains that the close of Yamaichi Shoken [ja] [山一證券] resulted from the bankruptcy of another broker, Sanyo Shoken, which then triggered default on an interbank loan, resulting in panic and the failure of Hokkaido Takushoku Bank and Yamaichi:

The Ministry of Finance let Yamaichi fail because it was only a broker. However, Fuji Bank, the “main bank” of Yamaichi became the target of short selling, because Yamaichi's bankruptcy signaled the liquidity crisis of Fuji. Then overall credit crunch emerged, which forced the MoF to bailout 21 major banks in 1998. It was similar to that of AIG.

In a post entitled “This thing called confidence” (信用というもの), blogger kitanotakeshi55 responds to a comment [ja] by Economics Minister Kaoru Yosano that influence from the financial crisis would be on the order of a bee sting (ハチが刺した程度):

結局、元大蔵省のエリート官僚達は予算を決めるのが自分たちの仕事だと信じているのです。予算を決めて、国債の発行額を決める。キャリアの官僚の仕事はそこまでだ、というのです。流通がどうなろうと、実際の取引で何がどこでフェールしようと、それはキャリアの官僚の管轄外、という認識です。こういう人(々)が今や国会議員で首相を目指している訳です。

In the end, elite bureaucrats from the former Ministry of Finance believe that their job is to decide on the budget. Decide on the budget, and decide what amount of government bonds should be issued. This is as far as the job of the career bureaucrat extends. Their thinking is that figuring out what is happening in money circulation, and what is failing where in actual transactions, is outside the scope of the career bureaucrat. It is this kind of person (people) who right now are in the National Diet aiming to become prime minister.

(kitanotakeshi55 makes a note here that Yosano was in fact not born a career bureaucrat, and that while the way Yosano was described in this blog entry would seem to make him out to be that type, this was not the blogger's intent.)

kitanotakeshi55 continues with a parallel to the ongoing tainted rice scandal:

国民の皆さん、特に港区のみなさん、よく覚えておきましょうね。考えてみると検査さえすれば実際の流通の現場がどうなってるかなんて関知しないよ、と言っている事故米と全く同じ構図ですね。こういうものなのですよ、実態は。

Citizens, and in particular all of you in Minato Ward, please keep this in mind. If you think about it, this case exhibits exactly the same pattern as the tainted rice scandal, where people believed that as long as inspections were being performed, there was no need to concern oneself with what was actually happening with the circulation [of goods]. This is what it's really about.

Blogger nutrocker writes about how complicated the system of global financial transactions has become:

汚染米ではないが、信用度の低い住宅ローン債権を、見てくれの良い金融商品に変え、金融取引を可能にさせたのが、いわゆる金融工学なる学問が生みだした錬金術である。伝統的な金融取引の場合、お金(資金)の借り手と貸し手との関係は明確で、個別にリスク管理ができる。金融工学はこのような単純な仕組みを見えなくしてしまった。数学的、統計的な手法を用いて、新たな金融マーケットを生みだした。実体経済を伴わない金融商品が多数作り出されることになった。そこに金の亡者どもが群がり、これぞ新しい金融経済だとばかりに、国の財務担当者までが一斉になびいてしまった。

This is not contaminated rice, but it is the alchemy that gave rise to the study of what is called financial engineering, a practice that changed sub-prime housing loan credit into financial products, making possible financial transactions. In the case of conventional financial transactions, the relationship between the lender and borrower of money (investment) is clear, and it is thus possible to manage risk on a case-by-case basis. Financial engineering has made it completely impossible to perceive this kind of simple mechanism. It has given rise to new financial markets that harness mathematical and statistical techniques. Countless financial products are now being created that are not produced out of any real economic activity. The money mongers swarm in, and those responsible for financial affairs of the nation all at once yield to them as though this were the new monetary economy.

Blogger Jei at The Diary After Retirement is worried about the phenomenon of “borderless investment”:

あえて信用度の低いところを狙った金融というのは,理解しがたい。しかし,それを証券化することによって(お金でもないのに紙に書いた数字の羅列で)商売をすることができるというのが,アメリカ市場主義の恐ろしいところだと思う。結局リーマンブラザーズは「サブプライムローンが焦げ付き」→「他の証券会社より多くの投資をしていたため巨額の損失」を被ったということだろう。それがリーマンブラザーズ一社の破綻で終わらないところが恐ろしい。いまや世界の経済は,こうした投資がボーダレスにつながっていて,それこそ全世界の株価にはねあがってくるのだから恐ろしい。

Finance that targets an area with such a low level of confidence I find difficult to comprehend. Trade that is based on securing such finance (using numerical figures written on paper, though without any money) is however a frightening aspect of American market economics. It seems in the end that Lehman Brothers covered up the causal relationship between “subprime loans being bad debt” and the result of “huge losses from having made more investments than other securities companies”. The fact that this does not end with the bankruptcy of Lehman Brothers is what is frightening. The world's economies are now connected by this kind of borderless investment, that's what makes the world's markets jump, and that's what is so scary.

At gatto libero, another blogger writes about how dark and gloomy the world has become recently:

ただでさえ温暖化、ゲリラ豪雨、食安全問題とかいろいろふあんなところにもってきて
サブプライム問題以降いつ大恐慌が起きてもおかしくない状態、
おまけに福岡や千葉で子供が殺される事件が起きて、
不安だらけで希望があまりもてない世界になってきたなあと思います。
あんまり暗いことばかり考えたくないけどね…

With the variety of anxieties we have nowadays, from global warming, to guerrilla rain, to issues of food safety, it would not be surprising in this situation if after the subprime crisis we slipped into a major depression. Add to that the incidents of children who were killed in Fukuoka and Chiba and it feels to me like the world is becoming a place full of insecurity and without any hope.
It's not that I want to think only about gloomy things though…

Blogger kawaii123, finally, suggests that maybe it is capitalism itself that is coming apart:

今の資本主義自体が行き詰っているというこのなのでしょうか?
日本のマスコミは、都合のいいニュースしか放送しませんが、本当に役に立つ情報は
やはり、自分で見つけるしかないのかもしれなせんね。
中南米諸国では、ますます反米、嫌米主義が激しくなってきています。
それは、アメリカという国の力が衰えてきている証拠でしょう。今回のサブプライムで
完全にアメリカのドルの価値は下がり、どの貨幣が力をつけてくるのか注目されます。
ヨーロッパが、ユーロを共通の通貨にしたのは、やはり、先を読んでいた結果です。
日本もアジア圏で、円の力をつけようとしましたが、アメリカの横槍で潰された経緯が
あります。

Does this perhaps mean that capitalism itself is now faltering?
Japanese mass media is reporting whatever suits them, but in the end if you want to find useful information,
seems like there's really no other way to do it but to go out and find it for yourself.
In the countries of Central and South America, anti-America and anti-Americanism are growing more and more intense.
I guess this is proof that the power of America as a nation is in decline. As a result of the sub-prime loan crisis,
the value of the American dollar has dropped dramatically, and attention is now on which currency will pick up steam.
Europe switched to the euro as a common currency because they were thinking ahead.
In Japan and other Asian countries, efforts have been invested in the yen, but this process has been trampled by American intervention.

For another interesting perspective, check out this post [ja] at My Image Ltd. by blogger Waki, who finds a connection between the ease-of-use of the iPhone and the collapse of Wall Street investment banks.

4 comments

  • […] The ongoing collapse, bail-out and buy-out of Wall Street investment banks, threatening a U.S. and possibly worldwide recession, has triggered no lack of debates in Japanese blogs on the country’s strong financial connection with its overseas ally… [read more] […]

  • K2

    Japan suffered a 16 YEAR RECESSION as land prices fell back to reasonable levels (what could be actually earnt from living on the site, not what speculators conned buyers into paying). The present world f*up is caused by a similar real estate bubble.

    But what do the powers that be do? Bail out the banks and prop up real estate prices. A 4 – 5 year recession is almost a certainty with the vested interests propping up their mates. Let land prices fall. Keep a lid on land prices permanently by putting a holding charge on all land, taking taxes off work and consumption.

    This is the only tax the wealthy cant hide in a tax haven, and it has many benefits for sustainability, public transport.

  • […] last year in Japan saw, among other things, an economic crisis, employment instability, and the beginnings of the collapse of journalism. While the year was […]

  • […] lalu di Jepang dibarengi dengan, antara lain, krisis ekonomi, ketakmantapan ketenagakerjaan, dan permulaan runtuhnya jurnalisme. Sementara tahun 2008 sudah […]

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