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On Eve of Trip to China and Japan, U.S. Treasury Secretary Has Some Dutch Uncle Advice to Japanese

Aired September 6, 2001 - 04:33   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DAVID HAFFENREFFER, CNN ANCHOR: On the eve of his trip to China and Japan, the U.S. treasury secretary has some Dutch uncle advice to the Japanese.

Details now from "Financial Times" Ian Rodger, live from the paper's newsroom in London.

How are you doing, Ian? Obviously the treasury secretary is looking for some "decisive actions," his words, on the part of the Japanese.

IAN RODGER, "FINANCIAL TIMES": I don't know how long you have been paying attention to Japan, but this sounds like a replay of what we were hearing in the mid-1980s when the U.S. kept saying, you know, stoke up your domestic demand. You've go to help. You've got to do something. Don't be so dependent on exports. Stop being recantless (ph), and all that sort of thing.

Now, Japan is in sort of stagnation. If they stimulate the economy, the same thing is going to happen. The yen is going to go down, and there is going to be this flood of exports, or from the U.S. point of view, a flood of imports. And we're going to have all sorts of trade friction -- if you remember that phrase -- all over again.

HAFFENREFFER: You know, we learned this morning that Japan will open up their banking system books to the folks at the IMF. Is that going to be a first step in the process of repairing things?

RODGER: Well, it's certainly an interesting step along the way, because there are all sorts of estimates about just how bad the bad loan situation is in the bank. So it would be useful to have some people going in from the IMF and produce a sort of unbiased view.

The general feeling is there is a long way to go. There is probably a lot of the second and third-tier banks that have got to go bust before the government can really justify helping the big banks solve their problems. And in the meantime, the credit business in Japan is going to be pretty quiet. And that, too, is another big break on getting the economy out of its current deflation spiral.

HAFFENREFFER: All right, Ian, thank you very much -- Ian Rodger for us live from the "Financial Times" newsroom in London.

Back now with our featured guest today, Vince Farrell, chairman of Victory Capital.

And how is the effect of the Japanese economy -- how do you factor that into your expectations for either economic performance here in the U.S. or the stock market in general?

VINCE FARRELL, VICTORY CAPITAL: You know, Dave, I hadn't thought about that. That's a good point.

Japan has been in effectively a 10-year recession. This is the fourth recession they've had in 10 years, so just declare the whole 10 years to be a recession.

It's out of the factoring process as far as what you need to do in the United States to make some money, so it can only be a surprise on the upside going out. You just -- you almost have written it off. It's just a nonentity anymore.

To me, they just don't get it over there. They're still not dealing with reality. Like when the S&L crisis hit in the United States, as bad as that was, somebody stood up and said, close those banks down, pay off the depositors. And maybe they did it egregiously, because there were some banks that should have survived. But they still dealt with the reality of it and shot them.

HAFFENREFFER: And take your medicine.

FARRELL: Take your medicine, shoot them and go on. They haven't done that yet. So Japan is probably incredibly cheap.

There's a good article with Barton Biggs in one the magazines -- I think it's "Business Week," where he...

HAFFENREFFER: Morgan Stanley.

FARRELL: ... yes, Morgan Stanley. He is very good. You know, two years ago, he was dumb like Warren Buffett was dumb and all of a sudden he got smart again. But he has been around forever. He is a very astute observer. He says Japanese stocks are very, very cheap. I'll defer to him. I'm sure they are. But I don't have the courage to go there yet, because the structural systems looks flawed to me.

But it can only be a surprise as far as what goes on here, because it has been so bad so long, you're not anticipating anything good.

HAFFENREFFER: All right -- more with Vince coming up in just a moment.

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