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The Japanese banks and government and the fall of the system

We are now living the last days of a system that has lasted for thousands of years.
They teached you that the curve of the system was cyclical. In fact it is an exponential curve - limited in time.
Facts that any child can understand make it clear, that IF the system would not be finished by the BIG BANG, THEN JAPAN would be the first to fall.
The fact that Japan is the G-7 country more dependant on non-renewable natural resources is the main factor. There is a second  factor. Like in any exponential system, this second factor accelerates the fall. It was explained below, by JasonR, today, March 14, 2001.

The big japanese banks and the fall of the Nikkei

There is no mystery about what is going on. The Nikkei, the japanese stock index, has collapsed to 11400, down from as high as ~21000 about a year ago, and a middling range of 16-18000 for several years past. The big japanese banks have never owned up to or liquidated their losses running all the way back to the late 80s, early 90s "bubble" economy period there, when the nikkei was as high as 37000. It is now 70% below that peak, and down a third in the past year from its average price level.

Why does this matter? Because the japanese banks own shares in other japanese companies. These shares form a part of their capital. As all banks do, they then lend out several times the size of their total capital. The capital is the cushion against losses on bad loans. It enables a bank to repay depositers and lenders, even if the people it lends to, do not repay the bank. But only to the amount of the capital the bank has. Well, since the shares are part of the capital, you can figure out at what level of the nikkei, the banks have enough to cover their deposits and their other borrowings. That is the point where the capital hits "zero". It is estimated to be around 14000 on the nikkei.

In other words, as the japanese stock market falls, the japanese banks become insolvent. They cannot repay their debts, to their depositors and to other banks. Shares are not allowed to be included in bank capital in the U.S. for precisely this sort of reason. But it is commonplace in foreign banking systems. Banks do it because in good times, the shares pay better. Heads the stocks go up and the bank owners make money. Tails the stocks go down and the depositors lose money. Well, its "tails".

Despite 10s of billions in public money spent on bailouts, and a few high-profile liquidations in the past couple years, the japanese banking system is still underwater. Why do others continue to lend to them, when this is notorious? Because the depositors expect the government to protect them from losses, and other lenders expect bailouts. Everybody is pretending the japanese government will pay off everybody. In the meantime, because of the risk, loans to japanese banks in dollars pay more than loans to other banks. Incidentally, all of the above problems continue despite interest rates in japan that have been zero for years.

The big japanese banks and the other international bankers

Today, U.S. bank stocks fell sharply. The trigger was a report from Fitch, a credit agency, reducing the credit rating of a number of japanese banks. This is obvious but the report reminded people of it, brought it to the attention of people who did not have it on their radar screen, as the saying goes, and such-like. The U.S. banks fell because they have lent money to the japanese banks. Which are broke at this level of the nikkei.

The policies - another proof that the system was not meant to last past 2000

Japan should have allowed these broken banks to fail long ago. It didn't. It did everything to avoid the reckoning, simply hoping that something would turn up, improve the situation, revive their stock market, and put the banks "above water" again. "Let's pretend" as financial policy. The government pursued all sorts of nonsense Keynesian economics schemes, like boondoogle public works projects and zero interest rates - to try to "boost" the economy. But they would not let the banks fail, and release the grip they have on the real assets of japan, both capital and indirectly, labor.

These banks are not providing useful services to the japanese economy. They are continually forcing misallocations of capital in an effort to cover up past mistakes and fool people about what actually happened. What actually happened is the managers of corporate japan made a lot of crazy bets and lost a lot of real value, and the money that was risked was not their own, but the depositors'. If all of these banks had been closed gradually over the intervening decade, and new banks allowed to take their place, then the problem would be not so explosive.

Instead they rigged their stock market and gambled on their currency and played foreign markets.

So whatever gambles were being tried to save their bank manager's tails, didn't work. And the banks are bust, and just about everybody in the financial world knows it. The only thing propping them up right now, is everyone willingly speculating, aka hoping, that someone the sugar daddy japanese government will pay everyone and make everybody whole, no matter how stupid their previous economic decisions and loans. Or in other words, they all expect to make money not by making sound loans, but by the japanese government exerting its taxation power, for their benefit. 

The discussion Nikkei - the exponential curve on the move started July 2001. By September 10 it was clear that the international bankers couldn't intervene massively much longer in Wall Street.
Wall Street didn't crash. It didn't open. The towers crashed. May God have mercy on the souls of the victims. May Mankind understand the signs of God.