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2008年9月17日 (水)


(Sep. 17, 2008) The Yomiuri Shimbun
U.S. in no-win situation on Lehman failure
米金融不安 公的資金をためらったツケ(9月17日付・読売社説)

The U.S. subprime mortgage crisis, the largest factor behind the recent turmoil in the global economy, has claimed its biggest victim to date.

The failure of major U.S. securities firm Lehman Brothers Holdings Inc. caused the U.S. dollar to sharply drop and stock prices in New York and other markets worldwide to plummet.

Financial and monetary authorities in the United States and other nations will need to work together to ensure this does not become the entree to a smorgasbord of even more devastating financial collapses. All possible measures, such as injecting funds into markets and lowering interest rates, need to be taken to ride out this financial emergency.


Lehman Brothers--the nearly 160-year-old prestigious investment bank that was the fourth-largest securities house in the United States--filed for bankruptcy with debts totalling 613 billion dollars. The bankruptcy is the largest ever in the United States.

Many observers had expected that Lehman Brothers would be able to cobble together a rescue plan before it was too late. As a result, the abrupt announcement of its failure Monday sent shock waves through global financial markets.


Stock prices nosedive

The company's stocks had fallen sharply as the extent of its massive losses and writedowns due to the subprime mortgage crisis became evident. U.S. government officials and private sector representatives tried to devise a way to rescue the firm, but they were unable to settle on to whom the firm should be sold. The rescue efforts proved fruitless.

In March, the U.S. government used public funds to help Bear Sterns, the fifth-largest U.S. securities firm, when it ran into financial difficulty. On Sept. 7, the U.S. government also earmarked a huge amount of public funds to rescue government-affiliated mortgage financiers Freddie Mac and Fannie Mae.

This time, however, the federal government refused to provide public funds to keep Lehman Brothers afloat. The U.S. government apparently decided it would no longer shoulder the fiscal burden of extending relief measures so willingly and was concerned that bailout plans would create a culture of moral hazard among financial institutions.

It became obvious, however, that no financial institution would step in to save Lehman Brothers without financial help from the government.

Did the U.S. government have any other options? Some observers have suggested that the government should not have hesitated to inject public funds. The Lehman Brothers' case offered a lesson to be learned on what policies should be taken to handle similar cases in the future.


Merrill Lynch another victim

Meanwhile, Bank of America, the second-largest U.S. bank, has announced it will acquire Merrill Lynch, the third-largest U.S securities firm. The bank had been considered a likely contender to ride to the rescue of Lehman Brothers, but made an about-face.

Rumors were swirling among market players that Merrill Lynch would be the next to go under. Its plight left it with no choice but to bite the bullet and take shelter under the Bank of America umbrella.

Three of the five leading U.S. securities firms that had acted as engines for the global economy have been either driven out of the market or bought up by others. This is a highly unusual state of affairs.


The subprime housing loan problem continues to reverberate around the globe. Anxiety among market players is spreading. Concerns have even arisen about the financial health of American International Group Inc.

Stock markets have been turbulent. Monday's New York stock prices plunged more than 500 points from Friday's close. Stock prices in Tokyo fell by more than 600 points as a state of panic gripped investors and selling pressure snowballed.

The U.S. Federal Reserve Board, in cooperation with the European Central Bank and the Bank of Japan, has decided to supply money to short-term markets to calm fears. Speculation that the FRB would cut interest rates heightened Tuesday.

These moves likely came as the Fed hoped to stop the declines in stock prices worldwide. But in reality, wiping out financial uncertainty will be next to impossible unless U.S. housing prices stop falling. The measures, we fear, may end up being not very effective.


A vicious cycle--in which financial uncertainty cools down the real U.S. economy and causes an economic downturn--is becoming reality. Fears over ensuing slowdowns in the economies of Japan and other nations are growing.

The Lehman shock cannot be brushed off as a "fire on the other side of the river." Rather, it is a "tsunami" of the largest scale. The utmost care should be taken in policy management to prevent the flagging Japanese economy from deteriorating further.


Unfavorable winds

The annualized growth rate of Japan's gross domestic product in the April-June period was revised downward from minus 2.4 percent in a preliminary report to minus 3 percent. If the economies of other nations, including the United States, continue to be battered by confusion in financial markets, winds unfavorable to the Japanese economy might blow stronger.

Under these circumstances, the government's top priority should be to quell uncertainty over the financial markets.

As some financial institutions hurried to obtain newly released funds, short-term interest rates in the Tokyo market rose. In response, the Bank of Japan injected additional funds. The central bank must continue to promptly supply funds to prevent the financial contraction that all corporate managers dread.

Japanese financial institutions have exposure to Lehman Brothers of more than 400 billion yen. These institutions must do everything they can to get a clear picture of what will happen to those liabilities and related losses that might be incurred.

Crude oil prices have dropped sharply in recent weeks due to uncertainty over the world economy. Meanwhile, many Japanese export industries are at risk of being hit hard as the yen continues to appreciate against the dollar.

The government should consider drawing up measures that provide relief as soon as possible to prevent the credit crunch from debilitating small and midsized companies, and support corporate efforts to keep their employees on the payroll.

(From The Yomiuri Shimbun, Sept. 17, 2008)
(2008年9月17日01時51分  読売新聞)


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