The dynamic has all the makings of a Ponzi scheme. Only, the eventual losers will be Japanese taxpayers -- the people who ultimately provide the money to fund bank rescues. In the US, Enron Corp has been dubbed one of the best-ever examples of early investors being enriched by money put up by later ones to encourage more and bigger risks.
The same could be said not only of Tokyo's bank bailouts, but also Japan's annual campaign to prop up stocks ahead of the fiscal year-end on March 31. Japan watchers call this "March Madness." Investors that get in early will profit as prices rise, attracting new buyers and further boosting prices.
Tokyo's predictable interventions in the stock market explain why Japan is attracting fewer buy-and-hold investors than it would like. The real money is made taking short-term trading positions.
The Koizumi government is grappling with ways to reduce speculative stock trading.
"We must stop [drops in] stocks. It is outrageous that [the market] is loosening and loosening like having diarrhea," Shiokawa said last week.
Koizumi would be far better off addressing the problems that drove the Nikkei 225 stock average from 38,915 in 1989 to the neighborhood of 10,000 now. Banks are sitting on hundreds of billions of dollars of loans that will never be repaid. That growing debt load keeps banks from lending money and borrowers from seeking it. Until the bad loans are dealt with, Japan will just muddle along.
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