Events related to the Crash

• The Euro hit year-lows of U.S.$0.8465/Euro; this was a 2% fall in one day.

• General Motors has submitted a proposal to buy Daewoo Motors. There are rumors that GM bid U.S.$775.7 million for Daewoo Motor, and may assume U.S.$17.3 billion of Daewoo liabilities. GM has not specified what Daewoo assets it is bidding for.

• The state-run Korea Development Bank's (KDB) insistence on including the Daewoo's Pupyong plant in any deal with General Motors is thought to risk GM's lowering its offer price outright (apparently, the plant is worth money to avoid buying).

• Taiwan's export orders contracted 6.6% in April 2001 (to U.S.$11.6 billion) compared to April 2000, in contrast to the 1.41% consensus forecast decline by a Reuters poll last week. Taiwan's industrial output fell 5.85% in April 2001 compared to April 2000, in contrast to the 2.4% consensus forecast decline in another(?) Reuters poll.

• Japan's Financial Services Agency has decided to abandon regulations that current restrict life insurance companies to a maximum of 30% of their portfolios in domestic stocks, 30% in foreign-currency denominated securities, and 20% in real estate. This decision is thought to have been influenced by new stronger regulation in other ways. In particular:
  • Quarterly reports are now required.
  • The FSA can now order a life insurer to take action if its solvency margin falls below 200%.

• SunTrust Banks, Inc. has initiated a hostile takeover attempt on Wachovia Corp., in a U.S.$14.7 billion all-stock transaction.

• The European Central Bank contradicted its own PR statements by lowering its interest rate from 4.75% to 4.5%. This apparently was in response to recession risks in Germany, combined with the U.S. slowdown.

• David Asher (with the American Enterprise Institute) pointed out three extreme ratios:
  • the ratio of long-term debt to retained tax revenue, after mandatory transfers from Tokyo to prefectural governments, was 1,548% in 2000: roughly twice(?) Britain's peak in 1947.
  • the ratio of net financing to tax revenue was 121%: over 2.4 times Mexico's 47%, in 1981.
  • the ratio of interest payments to retained tax revenue was 33.45%: comparable with Canada's 32.75% in 1993.
  • Asher also projected that Japan's gross debt as a percentage of GDP would not continue to grow at its current pace. If it did, it would grow from 141% for fiscal 2000 to over 200% for fiscal 2005, and over 300% for fiscal 2011. If Japan does not take measures to control this on its own, Asher expects the Japanese yen to be involved in a currency crisis.

• Turkey's Treasury has closed losses of circa 23,000 trillion (Turkish) lira at the Ziraat, Halk and Emlak state banks. Also, the Treasury rules have been changed to prevent imposition of duty losses (subsidized loans) at the state banks. Ziraat and Halk banks also had their capital adequacy ratios raised to 8%.
• South Korea's President Kim Dae-jung indicated that stagflation was a concern, and that South Korea's exports should be diversified. Apparently, right now they are concentrated in computers and other semiconductor-based products.

• Hirotsugu Shinkawa, a Finance Ministry official supervising Japan's national health insurance program, reported that the program needs drastic reform to avoid collapsing (fiscally) in 2002. The programs reserves began declining in 1994, and has consistently declined since then. The sole exception was 1997, when the premium schedule was revised. The Health Ministry and the Prime Minister's office are expected to make a joint proposal for reform by the annual budget request deadline in autumn: I am not certain whether this is 2001 or 2002. The cash flow problems appear to be associated with financing health care for the elderly.