Friday, September 12, 2008

The 'Japanification' of Wall Street

Source: Financial Times

The ‘Japanification’ of Wall Street

Some old Tokyo hands have that creeping feeling of déjà vu when they look across the Pacific at events in the US.

The unfolding crises at Lehman Brothers, Washington Mutual – and before, , at Bear Stearns — have some eerily familiar patterns that evoke those days when Japan’s banks seemed physically incapable of calling a bad loan a “bad loan”, when absurd schemes were hatched in the belief they would reassure investors; and when the dead hand of Japanese bureaucracy seemed to be move silently, ninja-like, behind every financial crisis.

Of course there are always dangers in drawing parallels, not least because ultimately, no two situations are identical and the assumption that one can apply a solution from one problem to another – especially in the world of finance - can lead to both the wrong conclusions and the wrong remedy.

But at this point, some similarities are too striking to ignore, on how officials and executives in the west are approaching problems in today’s investment banking world – everywhere, from Germany to the US - compared with the attitude in Japan around the time of the bubble-era implosion and subsequent bank failures of the early 1990s.

In brief, first, you get denial – banks that were foundering insisting they were in a fine state of health. It’s a common - and, we suppose, understandable - syndrome: Why let your share price tank if you can support it with soothing words?

Then there is obfuscation, the stage at which weasel words, born of great creativity with the truth, are wheeled out – (a la “things are not necessarily going in our favour”). Think, Nippon Credit Bank, Long Term Credit Bank of Japan and – well, here’s a neat list to refresh the memory...

More: Financial Times

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