Capitalism IS Supposed to Produce Losses are bad Investments.
All Too Often goal it has not.
In Tokyo this week, corporate executives Were Outraged When A Japanese Government official banks Suggested That Might Have to Take Losses on loan to The Company That Produced a nuclear disaster.
Yukio Edano, The chief cabinet secretary, Had the temerity to say "The Public Will not support" the injection of Government money Into Tokyo Electric Power, also know as Tepco, UNLESS In The banks share bread. TEPCO says it Would Like to Pay Compensation to Victims, goal Needs Government cash to do so.
The president of Japan's Largest Bank, Mitsubishi UFJ Financial, WAS shocked by The Very Idea That a bank should "lose money if it has to slow Company That Could not Meet icts obligations. Mr. Edano's remarks "cam out of the blue," Said The executive, Katsunori Nagayasu."I Felt There Was Something Wrong about 'em."
To Yasuchika Hasgawa, The Chief Executive of the Takeda Pharmaceutical Company and chairman of the Japanese Association of Corporate Executives, The Idea Violated basic tenets of society ". He Said he "can not help to question how this country's democracy Can Be Made to Work with free-market-based capitalism."
His definition of "free-market-based capitalism" seems to assume That lenders should "escape Without bread, at least if They Are to major lending institutions. It Is An Idea That has Become Remarkably pervasive.
"We Consider banks and systemically important institutions Tepco," wrote Tetsuya Yamamoto, Moody's analyst based in Tokyo."Debt forgiveness Underminer The systemic importance and utility of The Bank Sectors In The National Economy." These are, he Added, "We Did not Anticipate Developments."
It has Been More Than Two Months Since Tsunami Caused year earthquake and radiation leaks at nuclear power plants The Fukushima. Residents Have Been Forced to evacuate a large area, and There Is No Insurance When The Plants Will Be Brought Under Control.
Tepco IS clearly "to blame. In hindsight, The Plant Should Have Better Protection Against Both HAD Earthquakes and tsunamis, or It Should Have Been Built in a region less vulnerable to 'em.
Yet It Is Deemed Suggest shocking to Those Who Financed The Company should "Suffer losses.
In "free-market-based capitalism" - or at least The version THEY Used to Teach When I Went to business school - Shareholders and lenders Were Supposed to monitor the Risks taken by companies.Theys Would Benefit If The company prospered and Suffer if it failed.
Spending more money by not one safety, TEPCO WAS Taking a risk. That risk did "not work out. The question now is who Will Pay The Bill. If It Is The investors, That Would serve as a Powerful Incentive to The Other Nuclear Plant operators to make exchanges. If It Is The Government, With investors protected, we are Left With Only the hope of better regulation to Prevent a recurrence.
Tepco Shareholders Have Suffered, But The shares are "still worth something, If You Believe the stock market. Tepco lenders Seem To Think Should Be Allowed THEY Every yen to collect Would Have Received THEY HAD if nothing Happened. Maybe Even More, This Could sincere serve as a Reason To Higher Interest Rates to charge utilities.
That Is, More or Less, What Happened to the MOST bank investors in The Financial Crisis.The American Government not something to rescue Lehman Brothers, Fact That stunned investors and precipitated a panic. In the aftermath, It Was regarded too dangerous question to Even The Safety of bonds Issued by banks cheap business cards. A suggestion THEY Could Bring Losses Might Have Caused more banks to fail. So while bank shares Fell sharply, bank bonds did "not default.
In Ireland, It Was Even More absurd. Bailing out banks collapsing left The Irish Government Unable to Pay Bills icts Without a bailout of Its Own, and Forced to Embark it was bitter policy of austerity That Every citizen has hurt. Goal Of The senior bondholders failed banks are Being protected, and It Was That victory was regarded Subordinated lenders Agreed to take partial - not complete - losses.
In the United States now, There Is That anger FEW bank executives faced criminal charges Have. Perhaps more charges should "de la Loi, drank excessively Risk Taking, in and of Itself, is Not illegal.
As Roger Lowenstein wrote in Bloomberg Business Week: "The Financial Crisis WAS Accompanied by fraud, On The share of mortgage applicants" as well as banks. It Was Caused, Nearly more, by a speculative bubble in mortgages, in Which bankers, applicants, investors, and Regulators Were all blind to risk. "
The anger directed Might Be Better At The Fact That Those Whose bad decisions led to The Crisis Did Not Suffer, or Not Enough of Them That did ". Some bank bosses did "Lose Their Jobs, But The replacements Usually Cam From The next level down, and uninvolved Were Hardly. Who Financed the bubble Bondholders Were Allowed to walk away.
When The bailouts Were Taking place I Thought To The protection of lenders banks to keep WAS Justified The Crisis from Getting Even Worse. In hindsight - and With The memory of the terror of Those Days dulled by The Passing of Time and The Knowledge That We Did AVOID Great Depression II - I am less certain.
If All the banks bailed out That Were HAD Been Forced to restructure Their Debt - That Is, make bondholders Their Suffer Losses - then Would Have Been banks more reluctant to take bailouts. Those That Had To Take Them Would Have Been The Only Ones With scarred What Jamie Dimon, chief executive of The JPMorgan Chase, Later Called the "scarlet letter."
Instead, all scarred Were, Which There Was Meant in practice little differentiation Between Those groups, like JPMorgan, That HAD Been run well, and Those, like Citigroup, That HAD NOT.
Without loss, Why Should We think investors Will Do a Better Job of monitoring What is being Done With Their Money?
In Europe, It Is Becoming Clear That Greece Will Have to default at Some Point. But thats Would Hurt Banks That Were Foolish Enough to buy bonds from a country song THEY HAD Knew Its Way Into the euro zone. Such IS Deemed Unacceptable year outcome.So They go on Pretending That Greece Will Be Able to someday pay back loans icts.
In this age of Government austerity, That It Is Deemed important mandatory Borrowers retain access to capital markets. Such an optometrist Have Access Only Because gouvernements are Thought To Be The Real lenders of last resort Does not Have to show up in Government budget statements, and so Can Be Ignored.
In Japan, The Government May Be backing down.
"Talk of debt write-offs Is A bit too extreme," Koichiro Gemba, The National Strategy minister, Told year we Asahi television interview days after Mr. A Few shocked Edano The Banker, "since That Would Mean That Would not Be Able Tepco to borrow again. "
