Losses, losses, who’s got the subprime losses? According to Ambrose Evans-Prichard of The Telegraph, it just might be Japan:
Just as battered investors had begun to glimpse signs of recovery in America, the next shoe has dropped with an almighty thud in Japan. Echoes are rumbling across the Far East.
The Tokyo bourse has crumbled, suffering the worst start to the year since the Second World War. The Nikkei index is down 17 per cent since Christmas, and the shares of Japanese banks are leading the slide. Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui have all been punished as hard or even harder than those US banks at the epicentre of the sub-prime debacle.
The nagging fear is that Japan’s lenders - the conduit for the world’s greatest stash of savings - have taken on a far bigger chunk of mortgage securities, collateralised loans obligations and other exotica from America’s structured credit boom than they have yet revealed.
Americans and Europeans have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. We may find out soon enough whether the hold-outs are in Japan. The banks have to come clean under the country’s strict new audit codes by the end of the tax year in March.
The subprime pain has clearly gone global:
"Recession is a clear and present danger in Japan," said Tetsufumi Yamakawa, chief Japan economist for Goldman Sachs. "The leading indicators are deteriorating very sharply. Inventory is piling up at a rapid pace. There are clear signs of deceleration in exports of steel and semi-conductors to China," he said.
Yes, China. It turns out that the intra-Asia trade that was supposed to immunise the region against a slump is a disguised supply-chain ending up in the US market. American shoppers still make 30 per cent of global demand, just as it did a decade ago. Nothing has really changed.
What has changed is that we’re about to find out where, and how big the mortgage losses really are- and the reach will extend far beyond Wall Street.
Wow, wouldn’t that be ironic? (IF the article is correct)
Japan of all places should know about property investment bubbles.
If a property investment bubble can happen in as densely populated a place as Japan, then why in heaven’s name wouldn’t the Japanese realize it can even more easily happen in more sparsely populated countries (and countries with much less savings, to boot).
Mind you, much of Japan has been in a constant state of worship for all things American for several decades (in my opinion, a worship all based on their defeat in WWII, but I digress)
You only need to live there for a while to realize that America is idolized there. It wouldn’t surprise me if somehow the Japanese economists believed the American financial system to be infallible.
Perhaps time for the Japanese (and the world) to realize that America is only human?
Mike-
I believe they mean Japan has invested (or rather thrown their money away) on American mortage backed securities. I don’t believe the housing building excess and subprime occured in Japan but they got snookered into buying our CDO’s and other instruments of financial destruction (to coin a phase from Warren Buffet). They are a nation of savers with lots of cash chasing better returns than the 0% their banks offer. Everyone around the world was talked into this without any conception of the risk. What the hey if it’s got a AAA on it, must be a solid investment, right. There’s gona be a lot of pissed of folks when it sinks in that there’s not enough insurance to cover the fall (MBIA, Ambac, AIG, etc.)
Bruce-
You are right. All those poor savers invested in our AAA securities.
The Japanese did have a housing bubble though- I lived there for several years as it was going up. Tokyo is one of the densest cities in the world [Although I actually lived outside of Kyoto] so when they used the “They’re not making any more land” line, you’d think it was true there if it was true anywhere. Prices fell there for around 14 years, and the market has only recently began to recover a bit. They had quite a recession- now it looks we may help send them into another one.
Ok, the Japanese interest in Western ways did not begin with WWII, round eyes.
Back in the Meiji restoration era, Mori Arinori proposed making English the official language of Japan. There was some support for it in Japan, I am told.
http://en.wikipedia.org/wiki/Mori_Arinori
The Meiji era brought Japan out of the feudal era and started it on the way to becoming an industrial state. In 1854 Admiral Perry and his ‘black ships’ forced the signing of the Kanawaga Treaty, which ended Japan’s seclusion, and opened it to trade with the West. This lead to Boshin War, other treaties, Meiji constitution, yadda yadda yadda…
Point is, Japanese admiration (and fear, and sometimes hatred) of Western ways runs a lot deeper than WWII.
Twist- No doubt the Japanese squandered their economy on housing. But that was in the previous millenium. They always have been a nation of savers even through the trying 90’s. I could never concieve of a subprime debacle in that culture.
Yossarian-The Japanese are about to get another hard lesson in the ways of the West and as in the past it won’t have anything to do with good will.
brucewho:
>>I believe they mean Japan has invested
>> (or rather thrown their money away)
>> on American mortage backed securities
Thanks - Yes, that is exactly how I understood the article to begin with. And still, I say the same thing: Japan of all places should know about property investment bubbles. In this case, they should be aware of the property investment bubble in the U.S., that is at the crux of all their mortgage-backed U.S. securities.
Yossarian:
Who you calling “round eyes”?
>>Back in the Meiji restoration era
…
>>Japanese admiration (and fear, and sometimes >>hatred) of Western ways runs a lot deeper >>than WWII.
In my mind there’s a difference between the xenophobic Japan that finally (somewhat forcibly), opened itself up to the world in the 1800’s …and the Japan of recent decades that for a very large part worships the ground that America walks on.
Of course, you know that until they were defeated in WWII, the Japanese were THE dominant force in Asia by a longshot. Japan knew it, and definitely acted it. Their emperor was considered quite literally a “god” among many Japanese.
So what happens when you are a country that thinks it is the toughest kid on the block, that your leader is a God, but you get thoroughly defeated in a bloody war, and you watch as your infallible, unbeatable “god” meekly announces he is surrendering the country? You sure as heck are going to admire the “supreme” power that beat you.
Today, just about everywhere you go in Japan, it isn’t hard to find an American flag or other direct references to American culture.
Want some fries from the local convenience store? Look! They’re “American Fries”, bagged in a nice little American-flag container.
Want to pass the time in Tokyo? Count how many people walk buy with American references on their shirts or other clothing, or how many shops you see with names taken right out of Americana.
Want to go to a “Japanese” video store and rent something? Be prepared to find mostly American-made movies (but not very many other “western” movies). Yes, of course there are some Japanese movies, but not many considering you are actually in JAPAN!
Want to chat about entertainment with a Japanese person? Go ahead and mention your favorite American music and movie celebrities - they know most of them (age-relevant, of course)
Want to have some instant respect among most Japanese you meet in Japan? Tell them you are American, whether you actually are or not (Actually, I knew Canadian guy whose sure-fire way to impress a girl while over there was to tell them he was from California. It worked very well!).
Want to disappoint a Japanese person you just met? When he/she asks if (assumes) you are American (which most definitely will happen if you are caucasian - get used to it), tell him/her you are not. Try telling him/her you are Russian or Polish, for example, and while they will still be polite you undoubtedly will not be given that much attention.
I won’t pretend to know much about Japanese history, but having lived and travelled extensively in Japan, I’d like to think I know I thing or two about it’s psyche.
Certainly, Japanese admiration of the “western world” in general did not begin with the end of WWII.
BUT I believe that it’s deep adoration of America certainly did.
Thanks, all for the lessons in ‘real life Japan’ .. it’s a country I only know second or third-hand, but I find it curiously interesting.
I wonder exactly how their admiration intersects with them holding all our debt? Further, I wonder how they feel when they find out how much is worthless?
Just questions..
I guess we’ll find out, as we go.
Interesting picture in my mind about Japanese ‘American Fries’ and impressing Japanese with our American-ness.
How do they feel about us dark Native Americans? Sorrowful admiration, like the Germans? Or… well, what? Just curious.
Later.
>>How do they feel about us dark Native
>>Americans? Sorrowful admiration, like the
>>Germans?
Hmm - I don\’t know enough to generalize about that. Of the many Japanese I\’ve met, I only met a couple that made their feelings known on the Native America topic, and their feelings were like the Germans you speak of (sorrowful admiration).
Mind you, Japan has it\’s own (smaller) problems with native Japanese whose rights have been historically violated (albeit different from ours)…
But to put it very generally, and from my experience, if you are an American in Japan (compared to foreigners of other nationalities), you automatically score huge brownie/admiration points with most Japanese, regardless of what your racial ethnicity is.
Of course, it is a sad fact that you will be even more admired if you are caucasian (ie: compared to if you are Chinese-American for example). You only have to look as far as the controversies over some English Schools in Japan habitually preferring \”American-looking\” teachers (ie: caucasian, and if possible blond and blue-eyed) over otherwise.
Now don\’t get me wrong. Just because you are American, no Japanese are not going to kneel at your feet by any means. But there WILL generally be an obvious difference in attention you are given and the way you are treated.
Japanese generally like other countries/cultures as well, but their love of America is far and above everything else.
MikeC-
I lived in Japan for several years, and I rarely experienced any overt anti-American sentiment. The worst was a guy who was yelling at me about Hiroshima on a train platform once, and he was terribly, terribly drunk.
Actually a lot of fashions, styles, traditions, [i.e. Christmas cake] have their origins in Europe, not the U.S., but it is assumed sometimes that all things western come from the U.S.
Some things have become “adopted” though, and I wonder if the children even think of them as foreign. I had several Japanese friends who said when they brought their kids to the U.S. “Hey look- they have McDonalds here too!]
>>I lived in Japan for several years…
I got to live in both a small town for several years, as well as the big city, and I must say I enjoyed most of it. A great place in many ways!
Nice travel log folks. Can I get that in HD. Just kidding. I’ve been to Europe but not Japan. Both are certainly too expensive now unless you’ve got business there and a great expense account.
Back on topic, sort of, what about CDO’s? Japan’s certainly holding a bunch of them. AIG and other insurers can’t cover. In walks the Oracle from Omaha and says “I’ll help you guys out”. Sure by cherry picking only the best of their muni business. Very shrewd guy. Seizes the advantage from distressed companies while appearing to be a white knight. Wall street loved it, 133+ but the japanese will have to eat CDO’s for breakfast tomorrow.
More on Buffet and AIG:
http://www.thestreet.com/_rms/s/aig-bodes-ill-for-insurer-stocks/newsanalysis/serious-tools-serious-investors/10403002.html?puc=aoljjc
Igor says Warren is a vulture