This is off the subject but it's too long to place on the main blog and it's too good not to share with readers.
For background see this post, and specifically this from that post:
- most recently, about four weeks ago (?), Scott Adams mentioned in
passing but very clearly stated that China will blink / acquiesce / drop
tariffs / come back to the bargaining table once we see one or two
large banks in China fail -- Scott Adams didn't pick that out of thin
air -- his source was impeccable, no doubt, only because it seemed to be
such an odd prognostication
I vaguely recall that Scott Adams has banking experience, and at a fairly high level. Anyway, back to the reader's comments.
Unedited, from a reader:
Reading Scott Adams' remarks on Chinese banks gave me a chill.
Years
ago, we were Trustee for NM companies and quasi-governmental agencies
that issued publicly traded bonds. The transactions were typically
30-year deals at a fixed rate. (They quickly evolved into more nimble
terms as the market changed - but this is earlier on)
So,
it was paramount to do anything that could be done on the front end to
lower the interest rate. In the late 1980's, we saw a lot of issuers
buy Letters of Credit from the large Japanese banks - Sanwa, Dai Ichi,
Fuji, Sumitomo, Long Term Credit Bank of Japan. The issuers had to pay a
fee, of course, but the bondholders were paid by a draw on the Letter
of Credit (subsequently reimbursed by the Issuer) That little two-step
complicated our role as Trustee, increased fees for everyone, but still
had a long-range payoff.
Anyway,
I closed a fair number of transactions with that structure and met some
fairly senior folks in the process. To a man, (they were all
men)- they had come from families that were connected. Undoubtedly
bright and well-educated, there was nonetheless an element of heredity
responsible for their positions. They were insufferable. I had
initially given a wide leeway - imagining what I'd do if the shoe were
on the other foot. The documents for these transactions were hard
enough to wade through in my native language. I could not imagine
trying to do it in Japanese (;>) I repeatedly learned that that
wasn't the issue. They had a haughty disdain for American finance in
general (after all, they were providing the Letter of Credit linchpin)
and they would tie themselves in knots trying to deal with my attorney
instead of me. He (a Yale grad) would say "Oh, that's a business
question, you'll have to talk to the banker. I'm just here to advise
her on any potential legal matters". We were able to get every
transaction funded, but there were times it was dicey -
down-to-the-wire.
So,
there was sort of a sour taste in the Issuer's mouths, but it was what
had to be done..... for less than 5 years. The Japanese banks got too
big for their britches and imploded. Folks had rued the day that the
Japanese bought Rockefeller Center. I told everybody to relax. The
Scots and English owned all the big ranches - and then they didn't.
(Isn't the Marquis de Mores/Medora story fascinating?). I didn't know
how quickly the candle would burn out, but I had to work with anybody
that could get financing for my clients, and I didn't care if they were
Martians. When the Japanese banks failed/contracted/left with their
tails tucked, there were several news accounts of suicides. We watched
for one particular name, but he must have lived through it. ha!
I'll
link the story to the failure of LTCB - but I have to say that very
shortly after the J banks' failures, a well-known Japanese manufacturing
company came to NM and built a nice plant. Their representatives were
absolutely a delight to work with. You could tell there was a culture
challenge, but these guys were all about getting the job done. We were
invited to the grand opening of the plant. The NM lead guy had imported
barrels of sake and there was quite a ceremony. We drank from square
wooden cups that had a Japanese glyph burned into one side. I asked
what the symbol meant. He said "White Deer". I thought that might be a
lucky symbol akin to our rabbit foot or shamrock. He said "no, like
American Johnny Walker". (;>) Great experience to offset those of
the high-handed bankers. It was my impression that these manufacturing
guys didn't even like the Japanese banks. There were several comments
made throughout the years that indicated they were surprised at how much
we tried to expedite anything possible for our clients.
So
- here's the story of LTCB. Many of the other J banks had big trouble
as their commercial real estate business hit the skids. If the Chinese
banks fail - there will be suicides - that's what caused my chills.
High stakes.
