| Amid all the media hand wringing and uproar over lax | | | | country's borders, but stretched around the globe. The |
| control over the financial industry, it's easy to forget | | | | Japanese snapped up international hotels, including a |
| that this is not the first time a "perfect storm" of | | | | majority of Hawaiian properties, U.S. mainland banks, |
| events brought a nation's economy to the edge of the | | | | ski resorts and golf courses, including Pebble Beach. |
| abyss. We need only look back to the '90s to examine | | | | Sony cherry-picked its way through Hollywood and |
| what happened in Japan. It can put current events in | | | | took over both Universal Studios and Columbia |
| perspective - and show that, yes, countries and their | | | | Pictures. Then, in 1989, Mitsubishi purchased a majority |
| economies do bounce back. | | | | stake in Manhattan's crown jewel, Rockefeller Center. |
| Throughout the '80s, inflation in Japan was virtually | | | | Reading that last bit of news in the New York Times |
| nonexistent, even as real estate prices were soaring | | | | was a jolt to most Americans, and prompted David |
| out of control. But during the decade of the '90s, the | | | | Letterman to make light of it. He joked that Ronald |
| world witnessed the bursting ofyet another bubble - | | | | Reagan was in Japan peddling skyscrapers. |
| and by bubble we mean the empty, inflated, fragile | | | | In his book on Japanese economics, author Osamu |
| object that was the Japanese economy just before it | | | | Murayama describes the way an overheated stock |
| collapsed. | | | | market, skyrocketing land prices, and banks eager to |
| Many extenuating circumstances played a role in | | | | provide large-scale loans to risky businesses led to |
| Japan's unraveling. There were trade tensions with the | | | | reckless lending and questionable investment practices. |
| United States because of an imbalance and a huge | | | | Many banks got into such serious trouble that it wasn't |
| surplus, and weakness within Japan's own political | | | | uncommon for the entire senior management to be |
| power structure, particularly at the Ministry of Finance | | | | involved in deceiving MOF inspectors by manipulating |
| (MOF). Officials there came under fire and faced | | | | the books and hiding damaging information. |
| investigation for corruption and lax supervision of the | | | | The free ride would soon end |
| Japanese banking industry. | | | | Japanese banks had put themselves in a precarious |
| In a hauntingly familiar scenario for anyone following | | | | position. With little or no actual capital, they were |
| today's news, Japan's real estate market, banks and | | | | heavily invested in the stock market. In 1990, when real |
| stock market were equal partners in Japan's economic | | | | estate prices were already beyond sustainability, banks |
| downfall. Rising property values, coupled with the | | | | held about 22 percent of Japan's mortgages. By 1992, |
| banking industry's easy flow of credit, became the | | | | it became clear that the free ride wealthy land |
| driving forces behind escalating stock prices. There | | | | speculators and insider traders had enjoyed during the |
| was virtually no regulatory oversight as the greedy | | | | '80s was going to end with serious consequences. |
| and unwary got swept up into a dangerous, quickly | | | | After rising dramatically, the Nikkei stock price average |
| revolving spiral. | | | | fell from 38,915 in December 1989 to 14,309 in August |
| Landowners bought stocks on margin | | | | 1992, a decline of 63 percent. |
| Thanks to the undisputed success of Japanese | | | | The party was over. |
| manufacturing, particularly in the electronics and | | | | It wasn't until the bubble economy collapsed, the |
| automobile industries, Japan's banks had attained | | | | bottom fell out of real estate, and the stock market |
| enormous wealth, and therefore, credit was readily | | | | tumbled that the full extent of the banks' bad loans |
| available. Landowners began borrowing to buy stocks | | | | was finally revealed to the public. Banks were left with |
| on margin using their property as collateral. They | | | | massive bad debt, and with no easy capital to borrow, |
| immediately used their stock as collateral to buy still | | | | they were forced to liquidate many of their overseas |
| more real estate ... in a vicious cycle that looped back | | | | holdings, often at a loss. |
| on itself and kept spinning. | | | | In September 1995, the New York Times published a |
| Critics later argued that the fault lay with Japan's | | | | follow-up to its original story and summed up the tale |
| unique government-industry collaboration - it | | | | of Japan's bursting bubble. "Japanese Scrap $2 Billion |
| encouraged banks to look to the MOF for guidance. | | | | Stake in Rockefeller," the headlinedeclared. The article |
| Because of this reliance, bank officials weren't required | | | | reported that "Mitsubishi's sudden decision to exit |
| to have the expertise necessary to foresee or cope | | | | Rockefeller Center is the most striking in a string of |
| with financial difficulties, much less to make decisions | | | | recent retreats from the trophy properties stretching |
| on their own behalf. | | | | from New York to Honolulu that Japanese companies |
| Meanwhile, banks continued to lend at bargain interest | | | | acquired during a real estate binge in the 1980s." |
| rates as low as 2 percent, despite the fact that | | | | In the final analysis, all those individuals who had put |
| aggregate property value in Japan was approaching | | | | their money into Japanese real estate or stocks - like |
| levels four to five times higher than the aggregate | | | | so many others who prided themselves on being |
| property values in the United States. | | | | smart and opportunistic investors- learned too late that |
| A global land-grab | | | | all they had really done was gambled and lost. |
| The Japanese land grab was not confined to the | | | | |