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Finances / Finanzen » uk.finance » Ireland's kamikaze capitalism
| Ireland's kamikaze capitalism [message #373545] |
Di, 14 März 2006 00:35 |
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Good article and a warning for us all ......................
Ireland's kamikaze capitalism
http://www.sbpost.ie/post/pages/p/wholestory.aspx-qqqt=DAVID %20MACWILLAMS-qqqs=commentandanalysis-qqqsectionid=3-qqqc=5. 2.0.0-qqqn=1-qqqx=1.asp
12 March 2006 By David McWilliams
Picture the scene. You walk into the library two days before your
finals. Everything is a blur and that horrible pre-exam fear dominates.
What if the wrong questions come up? Where are the photocopied notes
you snaffled yesterday?
You sit down for some desperate last minute cramming. The bloke next to
you, who you vaguely recognise from your class, takes out a Japanese
dictionary. He thumbs it confidently.
You feel sick. What's with the effing Japanese dictionary, you
over-achieving bollix?
These are economics finals. So you tentatively ask, ''Why the
dictionary?"
With the superior air of a man who has already secured a ''milk
round'' placement, he sniffs: ''If you don't speak Japanese,
you'll never get a proper job! They are taking over the world,
don't you know?" This is all a bit much to take two days before
your finals. He moves the dictionary aside to reveal two airport
bestsellers: ''Japan as Number 1'' and ''Yen! Japan's New
Financial Empire and its Threat to America''.
The year is 1989. The New York Times warns of an economic Pearl Harbour
and adds that ''forty years after the end of World War II, the
Japanese are on the march again in one of history's most brilliant
commercial offensives, as they go about dismantling American
industry''.
The land on which the Imperial Palace in central Tokyo sits is valued
at more than the entire real estate of Canada - the world's second
largest country.
Japan was experiencing the most inflated property bubble of the 20th
century.
With paper profits from property back home, Japanese investors were
busy buying up trophy assets in the US - from the Rockefeller Tower
in New York to Columbia Pictures in Hollywood. The best-selling book of
the year was Michael Crichton's Rising Sun, which he said he wrote to
''make America wake up''.
Corporate America was in the grip of a Japanese hysteria and both
mainstream commentators and the political elites believed that the
Japanese march to world commercial domination was unstoppable.
Ambitious Dublin students - in an era of 18 per cent unemployment -
bought into this and were swotting accordingly.
Last Thursday, almost 20 years later, the Bank of Japan announced it
may raise the benchmark interest rate from almost zero by the end of
2006 after ''ending a five-year deflation-fighting policy''.
This deflation followed a ten year recession in the 1990s. Instead of
taking over the world, powered by its roaring property market, Japan
suddenly, and for most people shockingly, went into an economic crisis
that lasted almost 20 years. How did everyone get it so wrong?
People say that pride usually comes before a fall and in the case of
the Japanese economy, this was certainly true. The Japanese property
bubble lasted almost a decade and was driven by cheap credit, massive
financial deregulation and a fair amount of pop-psychology as the herd
reacted to the property boom. JP Morgan, the American banker, once
famously said that ''nothing so undermines your financial judgment
as the sight of your neighbour getting rich''.
In the case of Japan, this was right on the mark. The boom led to
almost panic buying, financed by a banking system that lent out money
for just about anything. It changed the behavior of Japanese people
dramatically. Traditionally, subdued, frugal and hierarchical, the
Japanese became loud, flash and freewheeling. Japanese, who hardly
travelled before, began buying second houses all over the world from
Honolulu to Hounslow.
A great example of the frenzy that later became know as ''kamikaze
capitalism'' was seen in golf courses. As the economy boomed, so
too did golf. The game was a central feature of Japanese corporate life
and a permanent fixture in the shain ryoko or company outing.
Membership of a golf club club denoted a certain privilege and bestowed
a clear hierarchical structure on what is a very position-conscious
society.
As property prices boomed, banks fell over themselves to lend to golf
course developers, seeing golf clubs as a property play.
In 1982, one of Japan's leading newspapers, the Nihon Keizai Shimbun,
launched the infamous Nikkei Golf Membership Index, which calculated
the average price of membership in 500 clubs. The market in club
membership was sustained by salesmen who earned commissions flogging
membership certificates with the free-lending banks financing up to 90
per cent of the so-called ''collateral''. From its base of
100,the index rose steadily to 160 in 1985 and then took off in the
''bubble'' years of the late 1980s to peak at 1,000 in June
1990.
In January 1990 - six months before the Golf Index peaked - the Bank
of Japan began raising interest rates. Everyone thought the market
could sustain what were modest increases of 4 to 6 per cent.
Initially, investors suggested it was only the foreigners who were
selling.
When those who had bought at the top of the market began to sell, this
quickly led to a stampede. Prices fell precipitously. The formerly
faithful banks panicked as bad debts mounted on their balance sheets.
Overnight, credit conditions in Japan went from a flood to a drought.
The more the banks retrenched, the more bad loans mounted - which in
turn led to more bad debts, which led to more loans being called in as
the banks faced bankruptcy. The large Japanese banks which had
dominated global banking in the late 1980s saw their share prices
collapse.
The economy went into a tailspin. Last Thursday was the first time
interest rate rises have been signalled in Japan since 1990.The problem
in Japan in the past decade and a half has been what Keynes identified
as a ''liquidity trap''. He described a situation that
pertained in 1930s America but is equally applicable to Japan during
the 1990s.
In a liquidity trap, no matter how low interest rates go, people who
just lost everything will not borrow. This means that cutting interest
rates, assuming that you have the competence to do so, does not work.
This is the economic equivalent of MRSA where the patient does not
respond to traditional antibiotics. It implies that the recovery period
is much longer than it would otherwise be and than anyone expected at
the time.
Now let's get back to Ireland. Do you see the similarities? Is your
financial judgment impaired by the sight of your neighbour getting
rich? Like the Japanese overseas investor, are you RoboPaddy - that
unique Irish investor who runs around the world trying to buy the
place, purchasing off plans from Alicante to Budapest?
Do you see the share prices of our banks going through the roof in the
past few years as their profits (almost exclusively derived from the
property-inspired credit expansion) grow? Will they, like the Japanese
banks fall to earth? And if they do will some have to be bailed out by
the government -as happened in Japan?
Think about it. When we start - like the Japanese - to believe our
own propaganda, anything can happen. There are two crucial differences
of course. Firstly, Japanese manufacturing remained -even throughout
the property boom - hypercompetitive, innovative, disciplined and
flexible.
Even when the domestic credit economy collapsed, at least manufacturing
- which was controlled by Japanese executives - continued to export. We
don't have a domestic manufacturing industry. The second crucial
difference is that we do not have a real central bank. If things went
pear-shaped here, it is highly likely that our interest rates would be
rising not falling.
This is because Germany operates in a different economic cycle to us.
No country in the world has ever experienced a property meltdown that
was not cushioned by falling or possibly zero interest rates.
Who knows, we might yet be learning Japanese in the years ahead - not
to get a job, but to learn some lessons about how things could pan out
here.
www.davidmcwilliams.ie
http://www.housepricecrash.co.uk/forum/index.php?showtopic=2 5874
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| Re: Ireland's kamikaze capitalism [message #373562 ] |
Di, 14 März 2006 10:10 |
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In article <1142292933.804246.190990 [at] i39g2000cwa.googlegroups.com>,
crowleyalastair [at] yahoo.co.uk says...
> 12 March 2006 By David McWilliams
>
Typical McWilliams whinging and doom and gloom bullshit. He's been
gagging for a crashed economy for years.
--
Howard
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| Re: Ireland's kamikaze capitalism [message #373564 ] |
Di, 14 März 2006 10:30 |
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Howard9 wrote:
> In article <1142292933.804246.190990 [at] i39g2000cwa.googlegroups.com>,
> crowleyalastair [at] yahoo.co.uk says...
> > 12 March 2006 By David McWilliams
> >
>
>
> Typical McWilliams whinging and doom and gloom bullshit. He's been
> gagging for a crashed economy for years.
Looks like he may not have to wait too much longer for one.
http://www.housepricecrash.co.uk/forum/index.php?act=SF& s=&f=22
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| Re: Ireland's kamikaze capitalism [message #373571 ] |
Di, 14 März 2006 11:30 |
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> Typical McWilliams whinging and doom and gloom bullshit. He's been
> gagging for a crashed economy for years.
Um, anger is one of the stages of denial you know.
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| Re: Ireland's kamikaze capitalism [message #373581 ] |
Di, 14 März 2006 15:20 |
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In article <1142332234.844475.300490 [at] j33g2000cwa.googlegroups.com>,
jameshamilton777 [at] hotmail.com says...
>
> > Typical McWilliams whinging and doom and gloom bullshit. He's been
> > gagging for a crashed economy for years.
>
> Um, anger is one of the stages of denial you know.
>
>
I told him that once. Looks like he didn't listen.
--
Howard
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| Re: Ireland's kamikaze capitalism [message #373590 ] |
Di, 14 März 2006 19:11 |
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"Howard9" <fictional [at] email.com> wrote in message
news:MPG.1e8098efb41438bd989ba0 [at] news.iol.ie...
> In article <1142292933.804246.190990 [at] i39g2000cwa.googlegroups.com>,
> crowleyalastair [at] yahoo.co.uk says...
>> 12 March 2006 By David McWilliams
>>
>
>
> Typical McWilliams whinging and doom and gloom bullshit. He's been
> gagging for a crashed economy for years.
Yeah... like the guy who was driving at a brickwall, he didn't hit anything
on the way so there's no danger!
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| Re: Ireland's kamikaze capitalism [message #373602 ] |
Mi, 15 März 2006 09:01 |
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In article <BHDRf.125960$x96.59546 [at] fe02.news.easynews.com>, no [at] spam.com
says...
> "Howard9" <fictional [at] email.com> wrote in message
> news:MPG.1e8098efb41438bd989ba0 [at] news.iol.ie...
> > In article <1142292933.804246.190990 [at] i39g2000cwa.googlegroups.com>,
> > crowleyalastair [at] yahoo.co.uk says...
> >> 12 March 2006 By David McWilliams
> >>
> >
> >
> > Typical McWilliams whinging and doom and gloom bullshit. He's been
> > gagging for a crashed economy for years.
>
> Yeah... like the guy who was driving at a brickwall, he didn't hit anything
> on the way so there's no danger!
>
>The usual Doom and Gloom merchants. Never happy unless you're miserable
and make everyone else miserable.
>
--
Howard
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| Re: Ireland's kamikaze capitalism [message #373687 ] |
Fr, 17 März 2006 08:41 |
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"Howard9" <fictional [at] email.com> wrote in message
news:MPG.1e81da4f7f5fecbd989ba3 [at] news.iol.ie...
> In article <BHDRf.125960$x96.59546 [at] fe02.news.easynews.com>, no [at] spam.com
> says...
>> "Howard9" <fictional [at] email.com> wrote in message
>> news:MPG.1e8098efb41438bd989ba0 [at] news.iol.ie...
>> > In article <1142292933.804246.190990 [at] i39g2000cwa.googlegroups.com>,
>> > crowleyalastair [at] yahoo.co.uk says...
>> >> 12 March 2006 By David McWilliams
>> >>
>> >
>> >
>> > Typical McWilliams whinging and doom and gloom bullshit. He's been
>> > gagging for a crashed economy for years.
>>
>> Yeah... like the guy who was driving at a brickwall, he didn't hit
>> anything
>> on the way so there's no danger!
>>
>>The usual Doom and Gloom merchants. Never happy unless you're miserable
> and make everyone else miserable.
I reckon even the smallest of houses on the dingiest estates should cost £2m
each, interest payments alone can then eat up twice their take home pay,
that would make every happy. First-time-buyers can simply live in tents,
much better to do that than make everyone "miserable"!
Dow 40,000, Terrace £2m.
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