AMPONTAN

Japan from the inside out

Bending over

Posted by ampontan on Saturday, May 14, 2011

口に税はかからない
The mouth is tax exempt.
– Japanese proverb

AFTER hashing over the matter in private with Tokyo Electric Power and the utility’s stockholders and creditors — the people who really count — the Japanese government has formulated a mechanism to keep the company afloat as it pays compensation for the damages resulting from the accident at the Fukushima nuclear power plant after the Tohoku earthquake/tsunami. No one expects a modern government to respect market principles, least of all Japan’s left-of-center government headed by a former “socialist democrat”, and our lack of expectations was fulfilled.

It is also an instructive exercise for observing the asana-like contortions of Big Government and Big Business as they make arrangements to skirt the law, the market, and common sense to perpetuate crony capitalism. The government will issue special bonds, expected to total JPY 5 trillion (roughly $US 62 billion) to provide money to a new institution. This institution will pay the compensation, and Tokyo Electric will repay them out of its profits. The government will have the option to buy preferred stock from the utility to keep it from bankruptcy. They will also set up a separate entity to oversee the utility’s operations and issue recommendations for improving or rationalizing them.

In addition, the plan will force eight other companies with nuclear power plants to contribute funds to the institution, as well as Japan Atomic Power Co., which designs, builds, and operates plants. Okinawa Electric Power is excluded because all their plants are non-nuclear. It is as if someone hit a pedestrian with his car, and all the other automobile owners in the neighborhood will be made to contribute to the hospital bill.

That will mean higher electricity bills for everyone in Japan outside of Okinawa, and that will cause the voters to grow restless. After all, why should they have to pay for a problem they didn’t cause, and for which they are not responsible? Therefore, Chief Cabinet Secretary Edano Yukio is jawboning the financial institutions that have lent money to Tokyo Electric to write off some of the debt. In fact, during a news conference on the 13th, he said it would be a prerequisite for using public funds. Unless they forgave some of the debt, he said, the plan “would not gain the understanding of the people at all.”

Well, that’s what he says now. Before the Fukushima accident, he said financial institutions did have responsibility for the debts:

“Lending the money while taking the risk of accident into consideration is a fundamental principle of the market”.

Did he have to file a return to get a tax exemption for that mouth? A former attorney with ties to radicals in labor unions and Kakumaru, the Revolutionary Marxist Faction of Zengakuren, Mr. Edano’s primary acquaintance with market principles was when he dunned the clients delinquent in paying his bill.

Here are the figures as of March 2010 for the loans some of the Big Swinging Dicks extended to Tokyo Electric:

Development Bank of Japan: JPY 351.1 billion
Nippon Life Insurance Co.: JPY 140.7 billion
Dai-Ichi Life Insurance Co.: JPY 126.3 billion
Sumitomo Mitsui Bank: JPY 121.9 billion
Mizuho Corporate Bank: JPY 81.8 billion

Some of the BSDs lent an aggregate JPY 1.9 trillion to Tokyo Electric after the accident. About those loans, the tax-free mouth said:

“The circumstances and conditions (from the pre-accident loans) are different. They must be thought of separately.”

This novel interpretation caused a sell-off of bank shares in the stock market, and share prices for the utility’s main creditor bank, Sumitomo Mitsui, fell 3.8%.

The opposition parties charge this scheme allows TEPCO’s stock and bond holders to skate, and say the problem should have been resolved using an open process, such as bankruptcy laws. Special legislation could have been created to compensate the disaster victims.

Mr. Edano rebuffed them by asserting that the claims of people suffering damages would have a lower priority of protection under bankruptcy laws, and “most of the claims would be unrecoverable”. He also complained that if bankruptcy laws were applied, it would have required a different scheme on a larger scale. Oh. Besides, they’re the DPJ. They only talk about open processes — they don’t actually use any. They might have to start paying a tariff on their mouth otherwise.

Not all of Tokyo Electric’s stockholders will be allowed to skate, however. The company reports that among its major stockholders are 370 financial institutions, 58 “financial instruments firms”, and 35 entities classified as the central government and local governments and bodies. Notice how a partial list of the top 10 stockholders resembles the list five paragraphs above:

Nippon Life Insurance Co.
Dai-Ichi Life Insurance Co.
Sumitomo Mitsui Financial Group
Mizuho Financial Group

Will they have to write off some debt? The government, through Mr. Edano, is trying to force them in that direction, but then the government has also come up with the means to prevent their TEPCO stock certificates from being turned into toilet paper through bankruptcy proceedings. They get to be the Japanese version of Lucky Pierre. Meanwhile, the public gets to be helots forced to bend over with a foot on their necks.

Was there any word about breaking up the company into generating and transmission units, and facilitating the introduction of smart grids, as some have suggested?

Do you have to ask?

UPDATE:

Writing in Gendai Business On-Line, Hasegawa Yukihiro passes on comments made at a meeting the Natural Resources and Energy Agency held with newpaper editorial staff members on the afternoon of the 13th after Mr. Edano’s news conference. Agency head Hosono Tetsuhiro was asked how he viewed the chief cabinet secretary’s call for loan write-offs. The answer was a bit circumlatory, but Mr. Hasegawa boiled it down to this: The agency went to a lot of trouble and difficulty to create this scheme and make sure the banks didn’t take a big hit. So if he’s going to ask the banks to write off some of the debt, why did we go to all that trouble to begin with?

Mr. Hasegawa also dismisses as stupidity squared the objection that normal bankruptcy proceedings would prevent the people living near Fukushima from receiving compensation. What are the Diet and the bureaucracy for if not to write and pass special legislation to ensure that doesn’t happen, he asks. (He doesn’t have to mention that the DPJ government is incapable of handling that process with any likelihood of success.) He adds that if a bureaucrat tried to offer that explanation to the editors, they’d think he was treating them as fools.

Finally, he suggests two reasons for Mr. Edano’s bank badgering. First, it’s a performance for public consumption. Second, it’s a way to disassociate himself from the Kan Cabinet. Mr. Hasegawa repeats his observation that the Cabinet is collapsing from within, and that Mr. Kan has very few actual supporters left.

FURTHER UPDATE:

Now it’s been revealed that Prime Minister Kan has cancelled his planned visit to Washington in late June.

And speaking of internal conflict within the Cabinet, the Yomiuri is reporting that the government’s discussions concerning the liability of Tokyo Electric were acrimonious. There is a clause in the law regarding compensation for nuclear accidents that allows power companies to be exempted from compensation in the event of very large claims. Financial Services Minister Yosano Kaoru thought that clause should be applied. Mr. Edano objected and said it was his interpretation the clause was not applicable. (The compensation bill wasn’t high enough?) The Yomiuri says a shouting match erupted between the two. (It must have been difficult for Mr. Yosano, a throat cancer survivor, to keep up.) Mr. Edano won the argument.

*****
Maybe the government could win public support for its scheme by using this for its public service announcements.

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One Response to “Bending over”

  1. toadold said

    Bending over is a touch subject amongst the Keynesians right now.

    http://pajamasmedia.com/richardfernandez/2011/05/15/the-wrath-of-kahn/

    Coming soon to a theater near you,
    “The Wroth of Kan!”
    —————
    T: Interesting that the WSJ called it “attempted rape”. Another outlet called it sodomization.

    – A.

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