Know the sequence of events, so you solve the right problem at the right time
From the experience of Japan, the major financial crisis will go through three phases, each requiring a different measure. The first phase is what the US is now going through, and that is mainly coming form the liquidity crisis. FRB has provided a credit line close to $100 billion and major institutions are now at the mercy of this facility. We lost Yamaichi and Sanyo Securities during the first phase of crisis because they could not pull money from the inter-bank facilities. The second phase of crisis comes mainly from working out the bad assets. They face the problem as the write-offs far exceed the equity and they can not raise fresh capital from the market as their share price falls to a meaningless level. The Long-term Credit Bank, Nippon Credit Bank and Hokkaido Takushoku Bank all failed due to the write offs coming from loans to failing or failed companies. At this stage, it is important for the government to inject fresh capital to let the banks revive and return to their normal operation. In doing so, the Government could end up owning a bank directly or through debt-equity-swap. The Paulson's rescuer plan is for this phase, as its main purpose is to buy bad assets. Not a bad idea, but I think it can be installed much later in the game, as more urgent need is for the banks to survive without the fear of being in a wolf pack.
The third phase is characterized by the massive failures of operating companies. This is because survived financial institutions are under severe surveillance of the Government and they can not easily extend loans to traditional customers, or corporations. This creates a problem of companies, which have traditionally relied on the bank loans for their operations. All of a sudden, a banker comes to the company, and says, " Sorry, we need to close the credit line and you need to return the money to us as your company is no longer bankable ( a new phrase they invented in Japan to pull the money from otherwise a good company)". We have lost hundreds of companies , such as Daiei, the largest retailer in Japan, in Phase 3.
So, what Mr.Geithner talks about, i.e. Japan's failure to address the right issues at the right time, is absolutely correct. We know we could have come out of the mess much sooner, had our government proactively, not reactively and unwillingly, faced the issues straight on. What I am not sure is if the Americans are addressing the right issues with the right priorities and right sequence, and how long it will take to get back to "business as usual". It has taken Japan 15years, and luckily, we are OK now as we do not have any further room to go down. If you recognize that the three phases are like the law of physics (indeed, it seem to me that what I described above is a general theorem of major financial catastrophes in the last one century), then we should expect that the US package should not be hastily worked out over the "weekend", but should be worked out utilizing all the wisdom of crowd a la Web 2.0 with the willing in the rest of the world.
この連載のバックナンバー
- 「おまえもか！」と非難したくなる世界の経済対策 (2009/04/07)
- 買いたくてウズウズしている米国民 ―― 株は底か？ (2009/04/01)
- ダメな金融機関をつぶしてよい理由 (2009/03/25)
- 再編が進む百貨店とコンビニ業界 (2009/03/18)
- 日本の景気対策に欠けていること (2009/03/11)
