Leading Japanese Economist: Write-Off All Toxic Assets, "Or the World Will Come to an End"
April 9, 2009 • 1:53PM

A leading Japanese economist, Daisuke Kotegawa, currently the Executive Director representing Japan at the IMF, has called for an urgent, simultaneous, government-sponsored inspection of all the major banks, to evaluate and write down the entire gamut of securitized products. These toxic assets should either be valuated at zero and taken over by a "bad bank," he said, which would return funds to the original bank only if the assets proved to have some value in the future, or written off by the banks themselves. Only if and when a bank could survive this process, should a government infusion of funds be considered. The current bail-out policies can do nothing to cure the crisis, he insisted.

Kotegawa presented this policy at several university presentations in the U.S. in the past month. In the 1990s and early in this decade, he was in various leading positions in the Japanese Ministry of Finance, where (he told a recent gathering at Brookings) he was considered the leading enemy of Finance Minister Heizo Takenaka, the primary architect of the Koizumi regime's disastrous privatization and deregulation policies.

Kotegawa argues that any approach to a bad bank which buys toxic assets from the banks at a discount, rather than taking them over at zero price, will eventually simply transfer huge debts to the taxpayer. He says that banks must be forced to conduct a self-evaluation of these assets, under federal guidelines, but that this must be followed by official inspection by government authorities, since left alone, banks have no incentive to honestly disclose assets, adding that lack of cooperation by banks should trigger criminal charges of executives.

This approach echoes LaRouche's demand for an FDR-style bankruptcy protection for the entire Federal Reserve system, coordinated with similar policies internationally, saving the chartered banks while allowing the creditor counterparties (mostly hedge funds and similar speculators) to collapse.

Kategawa noted that if this approach is not taken soon, then a vicious cycle between the financial sector and the real economy will be unavoidable. If the bail-out insanity continues, he said, or if the foolish global currency concept to dump the dollar for SDRs is pursued, then the dollar will soon collapse, and that will be the end of the world.