Gekko

THE Japanese banking crisis unfolds like one of those slow-motion explosions in a Sam Peckinpah movie, like The Wild Bunch or Straw Dogs. The Japanese crisis is generating a lot more useless talk than Sam would have tolerated, though, at least on their side of the Pacific. But so much of our own fate turns on the outcome that I've decided to start paying attention to it.

Far and away the best informed person writing about the Japanese banking crisis is Jeff Uscher of Grant's Asia Observer. I have my differences with him about a couple of points, but the burden of proof lies with people who disagree with the way he lays out the facts.

At the moment the outcome turns on how the Japanese government will deal with the insolvency of the Nippon Credit Bank. I use the term "Japanese government" deliberately, not "Japan, Inc." or "the Japanese establishment" because those two terms have lost some of their meaning in the course of the Nippon Credit crisis. The Japanese banks and life insurers are being asked to pay for at least part of what will probably turn out to be the first stage of the effective liquidation of the bank, to the tune of $565 million from the banks and $1.2 billion from the life insurers. These are "investments" in the same sense that spending on Clinton's AmeriCorps program is an "investment." None of the "investors" will ever see that money again. Neither, by the way, will the securities houses that have had to swallow huge losses on underwriting Nippon Credit paper in the public market. The sound financial institutions don't think they should pay, and keep paying, for Nippon Credit's failures. The government, though, lacks the authority, people, and worked-out plan that would be needed for a rescue.

But we're talking here about one of the 15 largest Japanese banks, right? Yes, but not every penny of Nippon Credit's loans and debentures wound up in the best of hands. Among its customers was the late Shin Kanematu, who was a sort of combination of John Gotti and Bob Strauss: big crime meets big politics. A friend of mine remarked on how understaffed Nippon Credit's headquarters were compared to its counterparts. "But then, how many people do you need to document crooked loans?"

Not much of this is really a secret in Japan, which is why the public doesn't think it should pay several tens of billions to save Nippon Credit. As a practical matter, though, there are a whole bunch of regional banks that own a large portion of its $77 billion in outstanding debentures. If it goes down, then some of them could go down. After that, who knows?

Here's where Jeff Uscher and I disagree. He takes note of the lack of consensus within the Japanese government about who will take the heat for a bailout. So he thinks the debentures will be paid out on only a small fraction of their value, with some of that coming in the form of Monopoly money. My feeling is that while the cost of a flat-out rescue of the bank would be huge and as unpopular as Janet Reno at a militia meeting, it is at least finite and calculable, unlike a bank collapse. Somebody can be tossed from the window of the Ministry of Finance to the angry mob below -- after the bailout. The consequences of no bailout, while incalculable, would certainly be larger.

Jeff thinks the current low price of the NCB's debentures -- around 88 cents on the dollar for last month's issue -- reflects the chances of a rescue. I think it might have more to do with the lack of a market for junk in Japan, not to mention the absence of vulture investors.

We'll see who's right within a month or so. Where Jeff and I agree is that a generalized failure of the Japanese banking system would have terrible consequences beyond Japan's shores. It would, however, do a lot for the value of the dollar, and you could start the egg timer on when to begin a massive buy of Japanese stocks. A total bailout, on the other hand, would crash the Japanese Government Bond, and probably do a lot for the gold market.

What is it about Maria Bartiromo? I seem to get more calls each day from traders about the CNBC stock-exchange correspondent than I do about Alan Greenspan. There are other attractive reporters on the network, which plays in the background of every American trading room, but none seem to stimulate the fantasy life of male speculators the way Maria does. I've met her a couple of times, and she's very much the nice girl next door if next door is in the New York area. Maybe it's some bio-electronic effect of TV screens interacting with banks of phones, but somehow she has become the Sharon Stone of business cable.

For an indication of Chinese strategic intentions, Simon Hunt, a British mining expert who in the form of Simon Hunt Strategic Services provides excellent research on the copper market, offers a useful measure: how much copper the Chinese buy for their "social reserves." If the government continues with a long-term buying program of 600,000 to 700,000 metric tons this year in the face of higher prices, then it is likely that it is planning the sort of adventurism a couple of years out that would lead to trade sanctions. If, on the other hand, China moderates the state buying to take the pressure off the price of civilian imports, then it may be planning on a more moderate course.

My unsolicited foreign-policy advice? Keep trading -- i.e., renew MFN -- and reinforce our military position in Asia.

COPYRIGHT 1997 National Review, Inc.
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