Fraud and Japan: Like Two Peas in a Pod?
September 15, 2012 Leave a comment
Ask most Americans or Western Europeans (“Westerners”) what they think about Japan, and the following words tend to come up: “efficient”, “organized”, “polite”, “shrewd”, “westernized”, etc.
Ask a Chinese, Korean or other eastern Asians what they think about Japan…you might get some of the above, but you are more likely to get – shall we say – less genteel – descriptions.
LST is bracing for the possibility that a wave of fraud contagion hits Japanese stocks, a la the China reverse merger trade. Few considerations:
- (1) A fund manager based in Japan indicated to LST last year that the # of potential frauds were just as high in Japan (if not higher) as China;
- (2) The first few QEs made it economically unappealing to short US-based companies (and fueled bubbles in names such as MCP, NFLX, etc)… LST believes this contributed to the appeal of the “China RTO fraud trade” ; QE III is here, and there’s a good chance that something similar may happen now, but to a different category of companies.
- (3) A half-decent short seller suggested he is looking as we speak
- (4) It seems that some “drum-banging” can work wonders to expose fraud in Japan…
Oh, lest we forget history: Japan never fully owned up to the rape, theft, murder, and other crimes committed against China, Korea, and many others, the way Germany did (for all Jewish readers: Happy Rosh Hashanah ראש השנה ).
“It may be pointless to try to establish which World War Two Axis aggressor, Germany or Japan, was the more brutal to the peoples it victimised. The Germans killed six million Jews and 20 million Russians (i.e. Soviet citizens); the Japanese slaughtered as many as 30 million Asians, at least 23 million of them ethnic Chinese. Both nations looted the countries they conquered on a monumental scale, though Japan plundered more, over a longer period, than the Nazis. Both conquerors enslaved millions and exploited them as forced labourers—and, in the case of the Japanese, as (forced) prostitutes for front-line troops. If you were a Nazi prisoner of war from Britain, America, Australia, New Zealand or Canada (but not the Soviet Union) you faced a 4% chance of not surviving the war; (by comparison) the death rate for Allied POWs held by the Japanese was nearly 30%.“
– Historian Chalmers Johnson
Despite the efforts of some very heroic and noble Japanese citizens to right these wrongs, it seems the nation-state of Japan chose instead to largely c0ver-up and hide. To make matters worse, efforts to revise history, deny Japan’s crimes (via Japan’s education system) and to glorify its criminals have picked up serious traction in the last 10 years in Japan.
On 26 June 2007, the U.S. House of representatives Foreign Affairs Committee passed a resolution asking that Japan “should acknowledge, apologize and accept historical responsibility in a clear and unequivocal manner for its military’s coercion of women into sexual slavery during the war”. On 30 July 2007, the House of Representatives passed the resolution, while Shinzo Abe said this decision was “regrettable”. Democratic Rep. Tom Lantos described as “nauseating” what he said were efforts by some in Japan “to distort and deny history and play a game of blame the victim.” “Inhumane deeds should be fully acknowledged,” said Lantos, chairman of the House Foreign Affairs Committee. “The world awaits a full reckoning of history from the Japanese government.”
This doesn’t seem like the best way to win friends. Nor does it seem like the best way to cultivate a culture where integrity is rewarded, a culture where admitting (and learning from) mistakes is encouraged…in fact, it seems like a perfect environment for fraud.
Michael Woodford, former CEO of Olympus Corporation shared these opinions several months ago, regarding fraud and Japan:
“I”ve read about the former Goldman director in the press. I’m not going to say greed and wrongdoing is unique to Japan. There are scandals in Europe, Siemens, Worldcom, Enron. Human nature is what human nature is. Individuals will act in a way that is wholly unacceptable. That’s not exclusively Japanese,” Woodford says.
“What is Japanese is the culture of deference and obedience. These qualities make hiding corrupt transactions much easier. You have people blindly following leadership. I saw even more of this after I made it public.“
“At first the Japanese media didn’t pick it up at all. They’re very self-censoring,” Woodford says. “It took an overwhelming barrage of me banging drums and repeating points in the media. In Alice In Wonderland Japan people think they can just ride these things out.“
“Even after chairman Tsuyoshi Kikukawa resigned, the person who took over for him went before the press well into November and stood up and defended those two payments despite their being so transparently ludicrous. That would never happen in New York! People like you would be throwing cabbages.“
“If this scandal tells you anything about Japan, it doesn’t make one optimistic that Japan will adapt to the challenges it faces,” Woodford says. “Japan has terrible demographics… and a debt-to-GDP ratio that makes Greece look like it’s in wonderful health. It’s only sustainable because the Japanese buy government bonds.”
“Without a Westerner who could articulate and express the problems and was willing to risk his career, to risk anything, the Olympus scandal would never have gotten out. How many more Olympus’ there are is a matter of speculation.“
“70 percent of turnover in Tokyo stock exchange is overseas investors. This is worrying when you consider the reaction of overseas investors to the Olympus scandal.“
“It makes a mockery of Prime Minister Noda’s claim that Japan is the same as any other capitalist country.”