Consider the 61-year-old Sakakibara’s take on Takenaka’s plan to force banks to cut bad loans by half in two years -- or face partial nationalization. In the unlikely event it’s enacted, says the former Ministry of Finance vice minister, it will be a disaster.
Takenaka’s ideas, Sakakibara thinks, are influenced by R. Glenn Hubbard, head of President Bush’s Council of Economic Advisers, whose views on Japanese banks are informed by the U.S.'s savings and loan crisis in the 1980s. But, insists Sakakibara, “Japan’s problems today are nothing like the S&L crisis. They are more like the U.S. depression in the 1930s.”
Takenaka has the process backward, according to Sakakibara: Cleaning up banks’ balance sheets should be the last step. The man once known as Mr. Yen would deregulate the four industries with the biggest debt problems -- construction, retailing, real estate and services -- to help them attract efficient new operators. Then banks could kill off the “zombies” and tackle their own balance sheets. “Takenaka is trying to enter the maze by the exit,” says Sakakibara.
Mr. Yen’s short-term expectations are pretty grim. The country will have “a major credit crunch” shortly, as banks try to curtail lending to boost their capital. But fortunately, “Japan will come through in the end,” says Sakakibara, because it’s rich and has a vast pool of human talent. Still, he predicts that a recovery will take five to ten years and require “several crises.”
