View from Japan

June 2002

''Banks Have Been Thieves''

Although banks' total deposits have been grown by 45 trillion yen compared with immediately before Japan's ''Big Bang,'' their lending has declined by as much as 95 trillion yen. In ''Banks Have Been Thieves,'' Richard Werner, chief economist at Profit Research Center and author of last year's bestseller Princes of the Yen, and Bill Totten, the president of Assist Co. known for his sharply critical statements, discuss where the difference of 140 trillion yen has disappeared. Totten believes that the great majority of it has found its way to the United States. There, window dressing of accounts is a danger, and if US shares should collapse, there is a fear that Japan will be left holding a further 100 trillion yen in bad loans.

Werner's prescription for disposing of banks' bad loans is very clear: The Bank of Japan should buy the loans and sell them again after deflation has been eliminated. He points out that there was a precedent for this just after World War II. Totten suspects that the financial ''Big Bang'' may have been the cause of the banks' current reluctance to lend. Werner holds, however, that instead of issuing bonds the government should borrow money from banks using loan agreements. He guarantees that if these measurers are taken, Japan could have 4% growth in a year's time. This solution is typical of Werner, who views the Bank of Japan's monetary policy as the cause of the recession.

(Summary of ''Ginko wa goto datta,'' Voice, June 2002.)