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Government Provokes Storm With Taxpayer Bailout of Lenders

December 19, 1995

TOKYO (AP) _ The government set off a storm of criticism Tuesday by announcing a nearly $7 billion taxpayer bailout of housing lenders drowning in bad loans.

Commentators almost universally denounced the plan, and a worried Prime Minister Tomiichi Murayama called a midnight press conference to say he was ``truly sorry″ to ask for public money.

The government’s move was the first step in a long-delayed cleanup of Japan’s banking woes and there are expectations of mounting expenses.

Japanese officials have spent months trying to work out how to divide the bad debt burden of more than 7.5 trillion yen, about $75 billion, that is crippling seven of eight major housing loan corporations.

The rescue plan announced Tuesday amounts to about 5,500 yen, approximately $55, for each of Japan’s 124 million people. But analysts estimated the $6.8 billion bailout could end up being doubled or tripled when the full extent of the housing lenders’ bad loans are known.

In the United States, it cost taxpayers $90 billion to bail out savings and loan associations from their worst loan problems since the Great Depression.

Like many Japanese financial institutions, the housing lenders, known as ``jusen,″ made tens of billions of dollars worth of speculative loans to real estate developers during the high-flying late 1980s and 1990-91.

When Japanese real estate prices plunged in the early 1990s, many of those real estate borrowers became unable to pay back the jusen.

In Tuesday’s move, made at a late-night Cabinet meeting, the government decided to spend 680 billion yen, approximately $6.8 billion, of taxpayer money in next year’s budget to help pay for a cleanup of the jusen.

The banks that founded the jusen wanted their main creditors _ financial institutions sponsored by agricultural cooperatives _ to shoulder much of the burden.

But the agricultural cooperatives blamed the banks for encouraging them to make the highly speculative loans. And both sides blamed the government for the bursting of the 1980s economic ``bubble,″ which caused the plunge in real estate values.

In the end, the decision to use tax receipts reflected the enormous political power of Japan’s farm lobby, exceeding even that of the media and the country’s urban salaried workers.

Hiroshi Kume, the nation’s most popular newscaster, attacked the farm-linked financial institutions on his evening news program, noting that many farmers got rich when land values soared in Japan’s postwar economic growth.

``They are saying the Japanese people are responsible because they lost money, but would they have given the people money if they had turned a profit?″ Kume asked.

The agricultural financial institutions, which invested about 5.5 trillion yen, about $55 billion, in the jusen, said they could contribute no more than 530 billion yen, $5.3 billion, to the bailout, and Murayama agreed.

``Any greater burden would have been impossible,″ he said, although like other officials he did not offer figures to back up that claim.

Government officials have been scrambling to put together a plan in time for the fiscal 1996 draft budget, which is to be announced Wednesday.

At his press conference early Wednesday morning, Murayama said quick action was necessary to ``secure confidence in the Japanese financial system.″

``I would like to ask the public _ although I am truly sorry to do so _ for its understanding and cooperation,″ the prime minister said, before facing a series of unusually hostile questions from Japanese reporters.

The problem of bad loans extends far beyond the housing lenders. Japanese financial institutions are saddled with at least 40 trillion yen, about $400 billion, in nonperforming loans.

The scandal earlier this year at Daiwa Bank’s New York branch, in which a bond trader covered up $1.1 billion in losses during a 12-year period, also damaged international confidence in Japanese banks.

The jusen bailout is considered likely to set a precedent for efforts to deal with problem loans elsewhere.

Under the Cabinet’s plan, banks will bear 3.5 trillion yen, $35 billion, of the jusen losses, and other banks that made loans to the companies to bear 1.7 trillion yen, $17 billion.

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