The G7 finance ministers and central bank governors adopted a "plan of action" to deal with the worldwide financial crisis that started in the United States. It calls for each country to "raise capital from public as well as private sources" to help major financial institutions improve their equity-capital ratio.
Prime Minister Aso Taro and other Japanese government officials are insisting on the need to use tax money to resolve the financial meltdown, saying, "The U.S. financial meltdown will not subside without massive capital injections."
Failed Japanese measures
The burst of the U.S. housing bubble that triggered the financial crisis is likely to continue to have repercussions. If more and more financial institutions incur losses, the amount of tax money used to rescue banks will continue to rise without an end, and the U.S. fiscal deficit that has accumulated with the Iraq War and increased tax breaks for the wealthy will also grow.
U.S. Treasury Secretary Henry Paulson, former Chairman and Chief Executive Officer of Goldman Sachs, along with other financiers who received huge amounts of compensation on the money market that prospered during the economic bubble, are the chief advocates of the injection of public funds to rescue failed banks. It is natural that U.S. taxpayers strongly oppose such a bailout.
The Japanese government pointed out its experience in the late 1990's, when it used public funds to help failed banks rebuild themselves. Finance Minister Nakagawa Shoichi said, "The success of the Japanese experience can be of help."
However, the fact is that Japanese banks, which the government rescued with tax money in defiance of strong public opposition, have been reluctant to lend money to small- and medium-sized businesses and carried out forcible debt collections from them. Also the balance of outstanding loans continued to decrease.
At present, major banks pay little in taxes due to preferential government treatment and are still reluctant to lend money to small- and medium-sized businesses. In contrast, they have invested in the U.S. major financial institutions in order to maximize their profits.
Major banks only pursue profits without regard for their fundamental role as financial institutions that are likened to the "blood" of the finance industry.
The Japanese government has spoiled banks by injecting tax money and recklessly urged them to increase their profitability through their financial policy. It is obvious that such a government approach has amplified banks' degeneration.
Putting people's livelihood first
At a time when the wave of financial crisis started in the U.S. is felt in Japan, it is important that we must not allow the government to force the general public to pay the cost for an economic slowdown. The need is to move away from the pro-big business policy and put people first.
