Events related to the Crash

• Japan's jobless rate held at 4.6%, despite a wave of corporate restructuring. The ¥/U.S$ exchange ratio today ran between 101 and 103; if this continues, export earnings are expected to suffer.
• Senior Ministry of Finance (MOF) official Haruhiko Kuroda described this week's ¥/U.S.$ exchange rate move as abnormal. I don't know when this conventional wisdom was developed. It directly contradicts my analysis of the interaction between modern liquid currency and bond markets. My analysis, combined with U.S. Treasuries at 5+% and Japan Government Bonds at practically 0%, states that qualitatively, the Japanese yen should strengthen over time versus the U.S. dollar in order to maintain the international competitiveness of Japan Government Bonds vs. U.S. Treasuries. This has been happening for some time now. I think repeated Bank of Japan interventions that are consistently aimed at weakening the yen versus the U.S. dollar are abnormal, and indicate a serious failure of the Bank of Japan to match its expectations of exchange rates with physical reality.
• The Indonesian Bank Restructuring Agency (IBRA), charged with cleaning up Indonesia's amazingly corrupt banking system, apparently has itself been targeted by President Wahid over charges of being amazingly corrupt. If IBRA collapses, it is expected that Indonesia's macro-economy will "totally self-destruct" (a large exaggeration, and my words, not the news story's). This is an independent method than the (currently) feared secession of Aceh from Indonesia.
• South Korea has announced that it does not want to tap the remaining U.S.$1.5 billion in IMF loans it is allowed to, citing concerns about making the won too strong if it were to do so.
• Russia has regained access to Japanese government loans (this was cut off in August 1998, when Russia conducted a mass default on Soviet-era debt). U.S.$375 million was issued today, out of a total amount of U.S.$1.5 billion.

• Svetlana Kudryavtsev, a former Bank of New York employee, has been formally charged in U.S. Federal court (in Manhattan) with lying to FBI agents about her relationship to Lucy Edwards and Peter Berlin (who have already been indicted in the ROCML Scheme@BNY).
• In spite of informing FBI investigators that she had never heard of Benex, a search of her work area turned up ~30 wire transfer forms signed by Peter Berlin. The physical evidence is damning, if it stands.
• Svetlana Kudryavtsev was fired in August 1999 for refusing to cooperate with an internal investigation by the Bank of New York.
• FBI agents believe she received more than U.S.$30,000 from Peter Berlin and Lucy Edwards between 1995 and 1999 (inclusive?).

• Japan's opposition parties [Democrat, Communist, and Social Democrat] have shut down Parliament -- until the Lower House reneges on its vote approving controversial reforms to the pension system. The offending reforms are:
• a 5% reduction in the core pension
• a gradual increase in the retirement age from 60 to 65.
• The ruling coalition intends to engage in deliberations over an extra budget, even if Parliament is shut down.
• There are some concerns that if Japan's government continues its current profligate spending for 1.5 to 2 more years, a Japanese bond crash could be imminent enough to cause capital flight from Japan. Please recall that Japan is maintaining a current budget deficit of about 10% of its GDP -- making Brazil's current budget deficit in early 1999 of 7% look reasonable. Also, Japan's economic stimulus packages make Italy look like a model of fiscal restraint....

• The International Money Fund has generally approved Brazil's economic reforms. Brazil is performing better in most areas than its July 1999 economic forecasts. It is unclear if Brazil actually needs (or wants) to draw on any more of the IMF funds that it could, under various reviews including the current one.

• Ecuador has announced its 2000 budget. There are serious concerns that this budget is unattainable. However, its goals are the minimum required to convince the IMF to provide financial assistance.
• At least one political faction can make a case that IMF policies have been consistently destructive for Ecuador since 1979 [two decades]. I have no idea whether this is correct.

• The Daewoo bankruptcy is expected to convert 13 trillion won in Daewoo loans into non-performing loans between September 1999 and January 2000. Government assistance is required to prevent a number of South Korean banks from falling below an 8% capital adequacy, as required by Bank for International Settlements standards. South Korea's non-performing loan rate of 6.2% for September 1999 is alarming the South Korean government.
• Two major Thai banks [Thai Farmers Bank Plc and Siam Commercial Bank Plc] have reported that in the past week, 11% to 15% of the loans they held that were (supposedly) rehabilitated have reverted to non-performing loans. There is also reason to think that many loans that currently have been restructured to interest-only will become non-performing loans again when principal payments are supposed to resume in 2002.
• In comparison with South Korea, Thailand's September 1999 non-performing loan rate is 45.3%....

• Ecuador's chief of the Armed Forces Joint Command, Carlos Mendoza, has again warned that social and economic crises in Ecuador may cause Ecuador's government to cease to exist.

• Japan's banks managed to ride the Nikkei rise to book profits. However:
• Japan's top 17 banks are estimated to be taking loan-loss charges of up to ¥4 trillion this business year, dwarfing the banks' initial estimate of ¥1.5 trillion.
• Japan's top 8 banks racked up ¥791 billion in loan-loss charges in the past six months, more than they projected for the entire year
• Japan's top 8 banks still held ¥10.7 trillion in bad loans, as compared to ¥11.7 trillion six months earlier.

• Pakistan's military government, as part of its anti-corruption sweep, had announced on Nov. 15, 1999 that anyone who had defaulted on "too much debt" [in the millions of U.S.$ ??] would face harsh treatment. [Approximately U.S.$4.14 billion of defaulted debt is owed the banks of Pakistan; most of it is owed by wealthy landowners, industrialists, athletes, and politicians.]
• The military sweep was conducted today. Former Prime Minister Nawaz Sharif and his brother Shahbaz Sharif were arrested, in spite of having over U.S.$6 million in loans repaid since the warning was announced. Former Prime Minister Benazir Bhutto (currently in the U.K.) is also wanted for unpaid loans.

• Japan has arrested Shinji Yamada, former head of the local Credit Suisse Financial Products branch, on suspicion of obstructing an investigation by the FSA by shredding documents and ordering subordinates to remain silent in Jan. 1999. Credit Suisse's official line is that the shredding of documents did occur, without management authorization.

• Pakistan has committed a technical default on its international debt by seeking to reschedule the payments. This makes it the third nation to do so: the first two, in no particular order, are Ecuador and Bolivia. [Russia defaulted by other means.] I have no context on whether Bolivia was in trouble before the Crash, or not; Pakistan was.

• The Trans-Ecuadorean oil pipeline was broken by a dynamite blast, causing the spill of 36,000 barrels of crude oil. This was totally unexpected: Ecuador has no known anti-government guerilla groups. However, this does happen in Columbia. Ecuador's military intelligence is investigating.
• As well it should: Ecuador's sucre dropped 4% when this news was announced. Petroecuador initially thought the break was from a mudslide.
• The dynamite was applied near the city of Santo Domingo de los Colorados, 83 miles west of Quito. There has been a severe political conflict between the coastal regions of Ecuador and Quito for over a century, at least.

• Japan has decided that its New Miyawaza Initiative aid to Indonesia [U.S.$2.78 billion has already been committed] will be ineffective if Indonesia lacks persons with technical expertise in legal and financial professions. The "average" Indonesian bank non-performing loan rate is roughly 60% (plus or minus 5%), and has been described as having lost all credit-extending functions. In an effort to prevent further Indonesian foreign borrowing, Japan plans to use some of this aid as financial experts (50 to be deployed among all countries in the New Miyawaza Initiative) and Indonesian export promotion (in the food and beverage, wood products, textile, electronic parts, machinery parts, and auto parts sectors).
• While Indonesia's profoundly weak rupiah is favorable for exports...it also snuffs imports cold. Japan is overlooking that the textile sector was killed by the weak rupiah somewhen before January 1998. Based on this, I expect the food, beverage, and wood product sectors to be the most responsive to export promotion.

• Ecuador's Economy Minister Javier Espinosa has openly announced that Ecuador is considering plans to defer payments on all external debt for seven years [this is U.S.$16 billion, with U.S.$13 billion being public debt] and to defer payments on all internal debt for twenty years.
• The U.S. General Accounting Office [GAO] has done an investigation of how the near-collapse of Long-Term Capital Management, a hedge fund, was handled by federal banking and securities regulators. The release date is November 10. The report is highly uncomplimentary....
• "The soikaya are back!" Kazuo Okuda, 57, was arrested on charges of extorting ¥30 million from three executives at Kobe Steel (in exchange for not sending a highly informed audience to disrupt the shareholders' meeting).
• Of course, the affected executives at Kobe Steel are also being charged with a violation of Japanese law: paying the extortion money.
• "For we understand by faith that the world is framed by the word of God, and that all things that are visible are made from that which is invisible." [Minor paraphrase of Hebrews 11:3]. The "natural moral law" apparently demands that corporations be subject to adequate auditing procedures.
• Soikaya perform auditing functions that, in more conventional nations, are required by regulatory agencies. [In the U.S., this generally would be the Securities Exchange Commission. Banks are also subject to the Federal Deposit Insurance Corporation.]
• Apparently, the "natural moral law" is not satisfied with Japan's regulatory agencies -- and has drafted Japanese organized crime to do these auditing functions. Soikaya are black market auditors.
• Corporations that pass the black market audits do not suffer extortion attempts.
• Corporations that fail the black market audits, if they fail to pay the extortion money [from the viewpoint of the "natural moral law", the fine that would be paid to the regulatory agencies if they had been doing their job], will suffer at their shareholders' meetings. A remarkably well-informed audience shows up to demonstrate how corrupt the corporations' books are -- by asking highly embarassing questions. [Yamaichi, formerly the fourth-largest brokerage in Japan, was "Chapter-7 bankrupted" within 48 hours of this treatment in August 1997.]

• Internal feuding within Japan's ruling coalition [Liberal Democratic Party, Liberal Party, and New Komeito] has justified speculations that a snap election may be called in the lower house before April 2000. This is considered to endanger (politically self-endangering) reforms necessary to stop Japan's economic shrinking and reduce unemployment.

• The U.S. Senate Governmental Affairs subcommittee on investigations has determined that from 1990 to 1996 (and possibly continuing?), Citibank systematically ignored evidence that their Swiss accounts were being used for money laundering.

• Malaysia's capital outflows continue to be far less than initially predicted. In fact, they are shrinking further.
• October 13-20: 515 million ringgit
• October 6-12 : 818 million ringgit
• six-week average ending October 12: 941 million ringgit/week
• The Bank of Japan has agreed (temporarily -- through 2002) to buy Japanese Government Bonds from the Ministry of Finance's Trust Fund Bureau via a reverse repo agreement to stabilize markets.
• The liquidity of funds held by the MoF's Trust Fund Bureau is questionable, since a major source of funding -- the Yucho postal savings system -- is dwindling.
• The MoF's Trust Fund Bureau will sell JGB's to the market first; JGB's that exceed market demand will be sold to the BoJ in a reverse-repo agreement for a duration of 3 months.
• A rollover of these reverse-repo agreements would constitute monetization of debt -- which is political poison. However, the possibility of rolling over these agreements has been explicitly stated.

• South Korea's Financial Supervisory Commission [FSC] has finished their due diligence study of the 12 Daewoo Group firms.
• The FSC rates the assets at 61.2 trillion won, and debts at 86.8 trillion won. [net worth: -25.2 trillion won]
• In June 1999, Daewoo rated its assets at 91.9 trillion won with debts at 77.8 trillion won. [net worth: 14.1 trillion won]
• The FSC estimates the maximum possible loss to financial firms from the Daewoo restructuring as 31.2 trillion won.

• Brazil has announced plans to simply its debt market by making it more like those of developed countries. Measures include:
• Regular debt auctions scheduled every Tuesday
• Fixed interest bonds with maturities at least one year will be offered at least once a month
• The issuing of zero-coupon bonds.
• The objective is to gradually lengthen the average debt maturity.
• Good move! This pushes Brazil further away from what caused the Crash in Indonesia, Thailand, and South Korea: international debt maturing in six months of less exceeding 55% of the total international debt.
• South Korea's central bank is considering two measures to attempt to stabilize its financial markets:
• The infusion of 2 trillion and 1 trillion won, respectively, in Korea Investment Trust and Daehan Investment Trust (which does not clean their books, but does let then operate normally)
• The purchasing of Daewoo bonds, following by repackaging to increase their liquidity.
• South Korea's national debts (at 40.7 trillion won), and currency stabilization bonds (at 48.7 trillion won), are at 83.3% or 83.5% of South Korea's GDP. [MyCNN was relaying Xinhua -- and the original story had both percentages cited.]
• South Korea's national liabilities have been on the rise since 1980.
• 1980: 16.8% of GDP
• 1985: 46.5% of GDP
• 1990: 49.6% of GDP
• 1998: 66.6% of GDP [Behold, "the number of the beast"? ;)]
• The issue of currency stabilization bonds was:
• 1997: 23.5 trillion won i.e. 19.3% of GDP
• 1998: 45.7 trillion won i.e. 37.5% of GDP
• Jan. 1999-Mar. 1999: 45.5% of GDP

• The Bank of New York has started to cut ties with "about 200" correspondent banks in Russia and nearby countries, and apparently plans to keep ties with "somewhat less than 100". This is in response to the ROCML Scheme@BNY .
• This follows a similar decision by Republic National Bank in October.
• The current estimate of the money involved is now U.S.$7 billion (revised downward from U.S.$10 billion).

• Indonesia managed to register a 0.06% inflation rate this month, breaking seven months of deflation. However, if the gold price spike is removed, Indonesia still has a deflation rate.
• Morgan Stanley has changed its review date for including Malaysia in its index of emerging markets to May 31, 2000 from Feb. 29, 2000. This is because Feb. 29, 2000, is a leap day in the Gregorian calendar -- whose existence is not uniformly programmed correctly.
• The Gregorian calendar is the second most accurate solar calendar documented. [The most accurate is the Mayan calendar.] The leap-day rules for the Gregorian calendar are as follows:
• If a year is divisible by 4, it is a leap-year, i.e. it contains February 29. EXCEPT:
• If a year is divisible by 100, it is not a leap-year, contrary to the above rule. EXCEPT:
• If a year is divisible by 400, it is a leap-year after all, contrary to the immediately prior override.
• Both the Mayan and the Gregorian calendar are sufficiently accurate that the varying spin of the Earth will cause a day error before the calendar's intrinsic errors cause a day error.

• Daewoo Group founding chairman Kim Woo-choong is expected to resign when he returns to South Korea from the current debt-restructuring talks. This resignation (as well as 14 other top executives') are expected to be approved.