Japan's Zombie Cleanup
You know things are getting desperate when capitalists start thinking that a banking nationalization is better than the status quo. That's what it's coming to in Japan, where even sober analysts are starting to bet on a government takeover of the country's troubled banks.</br></br>It's also what happens when a country prefers to sweep its problems under the rug for a decade or so. By now there could be as much as $1.5 trillion in bad loans at Japan's banks, an additional $1 trillion in insurance companies and a similar amount in the postal saving system.</br></br>That's "a total of $3 trillion to $4 trillion of loans that are uncollectible or troubled," says Japan-watcher Anthony Miller, writing in The Asian Wall Street Journal this week, "or between 75% and 100% of Japanese GDP." America's S&L crisis, which involved an amount equivalent to less than 5% of U.S. GDP, pales in contrast.</br></br>But the difference is that the U.S. faced the S&L problem squarely, albeit with the usual political messiness. Some careers were ruined (Fernand St Germain), and some people went to jail (Charlie Keating), but the failures were liquidated, depositors were paid off and the market found a bottom. In Japan, by contrast, the system hasn't enforced any accountability and so the banks have been allowed to roam the landscape like financial zombies.</br></br>Tokyo's stock market is signaling that crunch time may now finally be approaching for several of these walking dead. The share price of UFJ Holdings, Japan's fourth-biggest bank by assets, is down 50% this month. Mizuho Holdings, the world's biggest bank, is down 40%. With the new banking minister pressuring banks to come clean about their nonperforming-loans, first-half earnings reports could contain some nasty surprises next week.