How does $1 trillion of bad loans affect the Japanese economy

1. China and Japan’s banking system is in trouble.

2. Since 2009, Chinese have issued $5.4 trillion in loans, as part of the Beijing stimulus package

3. Flooding the economy with yuan maintained high economic growth short term and fueled a property bubble. The Chinese Banks system was undone with the new credit policies.

4. China’s national debt was $1.7 to $3.4 trillion at the end of 2010

5. China has 10.4 trillion in wealth management products. Borrowers are private investors. (http://thediplomat.com/2012/09/10/are-chinese-banks-hiding-the-mother-of-all-debt-bombs/2/)

6. Japan’s ministry of finance behaves semi-feudalistic, in the sense the MOF promotes key industries for success despite their effectiveness.

7. Japan’s economic success has created enormous banks as the primary source of operating and growth financing.

8. After 1985, Japanese banks were allowed to pay interest on deposits creating competition among banks for patrons.

9. Members of keiretsu were obligated to have cross-holdings of stock. Companies could not buy and sell stock for profit because of obligation. If they sold the stock, they had to buy it back at the new higher price.

10. Japanese banks are a big part of the stock market.

11. Japanese bank stock is critical to its financial stability.

12. Between 1987 and 89, city banks issued 6 trillion of yen of equity and equity related securities

13. Financial Keiretsu is not good. Banks loan money to customers at cheap rates the companies then turn around a loan the banks their own money back at slightly higher interest rates. It is meant to bolster capital strength.

14. In 1990s, Japan borrowed about $1.5 trillion from Europe then invested in the US. The Japan had to pay a rate for the borrowed money. (http://www.sjsu.edu/faculty/watkins/bubble.htm)

15. In 1990s, Japanese banks lent $600 billion and did most of the lending at the peak of the US real estate market. By 1991, Japanese banks had lent $750 billion

16. In 1990, Japanese banks held 22 percent of the mortgages

17. The collapse of the Tokyo stock market collapsed the banks tier-two capital putting them under pressure to find money.

18. In 1992, the Industrial Bank of Japan and Long term credit bank each had three to four billion of bad loans on properties not making payments

19. 75 percent of the banks lend money to small businesses

20. Japanese banks are penalized for giving out bad loans

21. In 1991, Japanese banks have reserves of 3 trillion yen ($25 billion) on loans amounts of 450 trillion Yen ($3.5 trilion).

22. The Japanese government could charge 90 percent on capital gains for a land sale. The tax discouraged investors from marketing the land for profit. The land values became artificially inflated.

23. Japanese banks use land for collateral. Decreases in land valuations create bank losses.

24. In 1990, Japanese life insurance companies own 13 percent of the Tokyo stock market; whereas, banks owned 9 percent. As banks began to lose value insurance companies sold bank positions increasing the price free fall.