You have to sit down for this: Japan's Financial Services Agency is talking about limiting investment funds from owning more than 20 percent of a bank or finance company. And the given reason -- here's the punch line -- is that FSA wants to ensure the banks are not targets for turnaround and takeover artists looking to make a fast buck, or yen, as the case might be.
FSA doesn't want the wrong type of people gaining control of banks. The problem is that the wrong people already control the banks, and if FSA institutes this plan they'll be controlling them forever. So once again we see that nothing succeeds like failure. The Nikkei English News reported earlier this week that FSA wanted to ensure management stability by preventing investment funds from engaging in short-term profit-motivated acquisitions of banks and financial institutions. Given the dire state of the financial sector, Japan should be so lucky as to have profit-driven investors take over its banks.
As for wanting to ensure continuity with the current bank management teams, well, this is like signing a multiyear employment contract for non-performance.
Frankly I never thought I would lecture Japan about the virtues of being more like the European Union. Yet last week the European Court of Justice ruled against France's and Portugal's so-called golden shares, which are shares owned by a government in a formerly state-owned company.
Golden shares confer the right to control management and block a merger, though the government may no longer hold shares sufficient to control the company in a conventional sense.
In effect, what FSA wants to do is create invisible golden shares for itself over the financial sector. The end result will be not only protection for lousy management but serious delays in the process by which Japan can reform its financial sector and, by extension, the whole economy.
The FSA plan goes straight to what has hamstrung Japan for more than a decade: an unholy alliance between government and the leaders of the business community to preserve the torpor of the status quo.
Want to know the best thing that could happen to Japan? That it would wake up some day to find most of its economic regulators and their cronies in the banks had washed out to sea, leaving the repair of the economy to self-motivated turnaround artists and quick-buck operators.
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