Did Poor English Save Japan From Subprime ?

By Mitsuru Obe

You would think Japanese banks learned a thing or two from the collapse of the country’s asset bubble in the 1980s and the bad loan mess of 1990s. And indeed, they did manage to sidestep two of the biggest financial shocks in more recent memory—the U.S. subprime meltdown and the European sovereign-debt crisis.

 

Want to know their risk-avoidance technique? Japan’s finance minister has an answer: poor English.

“Many people, especially European banks, were hit by dubious financial products such as subprime loans,” Finance Minister Taro Aso said in a lecture Friday sponsored by the daily Yomiuri Shimbun.

“Japanese bank managers didn’t understand English much,” he continued, “so they couldn’t get drawn into the trouble.”

An interesting theory. But do the banks themselves go along with it? Hard to say. Representatives of two of the three biggest banks Mitsubishi UFJ Financial Group 8306.TO +0.78% and Mizuho Financial Group 8411.TO 0.00%, declined to comment. The third Sumitomo Mitsui Financial Group 8316.TO -0.11%, wasn’t immediately available for comment.

And what lesson did Mr. Aso himself draw from the subprime crisis? The virtue of caution in financial decision-making? Not exactly. More the opposite.

Himself a successful businessman, Mr. Aso declared that companies have become too risk-averse. Focusing too much on safety, he said, Japanese banks now have nobody to lend to. And without borrowers, they can’t make money.

Following the collapse of the economic bubble in early 1990s, Japanese companies “shifted gear from profit-maximization to debt-minimization,” he said. “All the profit was used to repay the debt.”

But there’s a frugality paradox, which he illustrated with an example from his own life: “If I stopped smoking, drinking and golfing, my family would be very happy. But if everybody did the same, all the bars and liquor shops would go bankrupt Japan Tobacco 2914.TO -0.81% would go under. The streets would be full of unemployed people.”

Mr. Aso’s government is trying to encourage companies to embrace a little risk by borrowing money or making new investments. But few seem to be listening. After nearly 20 years of thrift, nearly half of Japan’s listed companies are practically debt-free, with more than ¥200 trillion (about $2 trillion) in cash on their balance sheets, he said.

“I can’t find energetic, risk-taking business managers anymore,” he said. “Without such energy, there won’t be real economic recovery.”

He certainly doesn’t find such managers at the country’s most influential business association—Keidanren, or the Japan Business Federation—he said.

“Most business leaders I meet look older than myself,” said Mr. Aso, an energetic 72 years old.

—Atsuko Fukase contributed to this item.

 

 

Source : blogs.wsj.com, le vendredi 28 juin 2013

http://blogs.wsj.com/japanrealtime/2013/06/28/did-poor-english-save-japan-from-subprime/