Aso to pull a McCain at the G7?

The Aso government has indicated plans to use the upcoming emergency G7 finance ministers summit to urge the US to adopt a Japan-style capital injection of troubled banks. The Nikkei backs up this position in an editorial: “The US and Europe must press the need for an injection of capital [into failing financial institutions] to assuage financial uncertainty.”

Of course, the US will probably have little choice but to inject capital anyway (the UK is already doing something similar), so Aso’s advice might simply be a ploy to try and take credit for something he had nothing to do with.

An online reading list to accompany the meltdown of the financial system

  1. Overview of how financial regulation works in the US, so you know who to point the finger[s] at.
  2. Marginal Revolution is, in my lofty opinion, the best blog for following all the antics. It’s written by a couple of econ professors who normally talk about curiosities (similar to Freakonomics), but lately they’ve been doing a great job of consolidating (and generating) economic commentary on the various implosions and bailouts going on.
  3. The Conglomerate is giving some of the best coverage from a legal perspective.
  4. If you want something on a higher level, read Calculated Risk, which is what all the bankers have been reading (especially now that they have nothing else to do).

Any other recommendations to share?

Aso cabinet should remember FSA’s success

Aso’s appointment of arch-conservative Shoichi Nakagawa as both minister of finance AND minister of state for financial services might seem, well, natural to the uninitiated. They’re both financial, aren’t they? For his part, PM Taro Aso has called the decision “more functional than dealing with [financial issues such as the Lehman bankruptcy] separately.”

Functional it may be, but I have my doubts that moving financial regulation back to the finance ministry will prove productive. Independent, prudent, and transparent financial regulations are part of what has allowed Japan’s financial sector to reap the benefits of late 90s deregulations and attract a base of foreign investors. That Japan has escaped the worst of the recent financial meltdown is a testament to the Financial Services Agency’s competence to regulate without the guiding hand of an all-powerful finance ministry. The Nikkei editorial board shares my concerns and has called any aims at reuniting fiscal policy with direct finance industry oversight “extremely problematic.” 

As FujiSankei Business-i explains, the initial decision to separate financial administration and law enforcement was taken in 1991 when Nomura Securities was found illegally compensating clients for stock investment losses. The Financial Services Agency was created later as the stand-alone financial industry regulator when the finance ministry itself saw its credibility devastated by corruption scandals. Currently, financial matters are divided thusly: FSA/SESC are the finance industry regulators, the Bank of Japan is an independent entity responsible for maintaining liquidity and monitoring inflation, and the finance ministry, as keeper of the treasury, has a more limited direct role and keeps an eye on exchange rates and participates in international meetings.
The arrangement appears to work well, except it is partially incompatible with international norms. The G7 meeting of finance ministers, for example, is attended only by Japan’s finance minister, despite his portfolio not extending to financial industry regulations (at the top of the current agenda). Predictably, an anonymous source in the finance ministry welcomes this turn of fortune as it represents a possible restoration of powers, regardless of Aso’s insistence that he chose people based on their dedication to “national interest” and not their ministry’s interest.
In his first post-appointment press conference, Nakagawa gave a somewhat muddled explanation mentioning that while he understands the debate of 10 years ago, fiscal and monetary policy are “two sides of the same coin” and should be handled together in “delicate” times such as these. 
As I mentioned above, on the face of it this doesn’t even look that bad. But getting financial regulation out from under MOF’s thumb has been an important step forward to achieving more normal financial services in this country. The ministry of finance was for decades the symbol of Japan Inc, the comprehensive term for the elite consensus that sustained Japan as a development state. But those days are over, and Japan has been in the process of adopting a more “mature” economy, a part of which was the creation of the FSA.
I have not made a comprehensive review of all the new government’s comments, but so far I have seen zero justification except the need to have someone responsible for financial industry regulation at the G7 finance ministers meeting. I hope they keep it limited to that. 
The FSA has established a reputation as tough but fair in the minds of the industry and the new administration, if it does get a chance to govern, would do well to respect that. 

The “Rosebud” moment

Now that Fidel Castro is finally resigning, just think of all the decades of trouble that could have avoided if President Roosevelt had just sent him that ten dollars he wanted back in 1940.

President of the United States.
If you like, give me a ten dollar bill green american, in the letter, because never I have not seen a ten dollar bill green american and I would like to have one of them.

My address is:
Sr. Fidel Castro
Colegio de Bolover
Santiago de Cuba
Oriente, Cuba

I don’t know very English but I know very much Spanish and I suppose you don’t know very Spanish but you know very English because you are American but I am not American.

Thank you very much, Good by. Your friend, Fidel Castro

If you want iron to make your ships I will show you the bigest mines of iron of the land. They are in Mayori, Oriente Cuba.

The actual letter is preserved in the US National Archives.