Thursday, June 15, 2006

Do you want to be rich? Or acceptable to Asahi Shimbun editorialists?

Somehow successful investing is wrong.

Fukui Toshihiko, while the chairman of the Fujitsu Research Institute, put a goodly sum of money into an investment pool he established with his colleagues.

When he was named governor of the Bank of Japan, he did not extricate himself from the fund--creating the appearance of a conflict-of-interest, if not a either a de facto or de jure one.

But is the conflict-of-interest charge what really has the fundoshi of the Asahi Shimbun all up in knots?

No, it is that Governor of the Bank of Japan is a more intelligent manager of his savings that most of the members of the general public!

BOJ chief's blunder
Asahi Shimbun

After leaving the world of bureaucracy to play the stock market, Murakami set about launching his own fund as "a gadfly investor." At that time, Murakami preached the unfamiliar gospel of shareholder activism, pledging to change the corporate mind-set at Japanese companies. He criticized them for paying too little attention to shareholder interests.

Speaking at a session of the Upper House fiscal and financial affairs committee, Fukui said he and colleagues at the research institute contributed money to the Murakami fund so as to "encourage" the maverick investor's challenge. Naturally, private citizens have the freedom to make investments in support of any cause they see fit. After all, there is no guarantee that investing in a fund will generate a profit. Such investments help revitalize the economy by supplying capital to people who take risks. Investment in a fund cannot be viewed as insider trading because investors have no say over the way the fund invests the money on their behalf. Even so, Fukui should have withdrawn his money when he became BOJ governor in 2003.

The Murakami fund earned a mixed reputation. It was lauded by some pundits for making top executives think about their shareholders. But there was also criticism that the fund sought only to make quick profits by buying companies' shares and then selling them at higher prices. Fukui could not have foreseen Murakami's arrest in a securities scandal, but he must have heard negative as well as positive views about the fund's investment policy.

At the same time, anybody in Japan with savings must have become increasingly disgruntled at the miserably low rate of interest they received as a result of the BOJ's zero interest rate policy. It is quite possible that Fukui ended up earning annual interest of more than 20 percent, which would not go down well with the general public.

As the top official of the central bank with huge power to influence the flows of funds within the Japanese economy, Fukui should have been more than cautious about his personal investments. During Diet questioning about his investment in the Murakami fund, Fukui said he had intended to donate any profit that might be generated. There again, the BOJ would face a credibility problem if Fukui had profited at a rate far beyond what ordinary investors could hope for.

Funny, I had always been taught that the stupidity of others was not my fault.

Furthermore, I always thought it a good idea to appoint bank managers who have some idea of how to use the financial system to make money--legally, of course.

* * *

The main editorial is just the hors d'oeuvres for festival of wackydom from the spitting mad Senior Staff Writer Nishii Yasuyuki, printed in this morning's IHT/Asahi Shimbun (unfortunately, diatribe not yet available on-line).
Fukui's acknowledgement on Tuesday that he personally invested in a fund formerly led by Yoshiaki Murakami poses a grave question.

Is it becoming for someone who leads the nation's central bank to make investments for profit?
Gosh, I don't know. Is there another reason for making investments?
The BOJ said its quantitative easing policy was expected to shift money from its interest free current-acccount deposits to equities and other financial assets.
The only customers the BOJ has are banks. They are in the business of moving money from out of the BOJ's accounts into assets.

Quantitative easing had nothing to do with it.
But then the stock markets, particularly those for start-ups, came close to becoming gambling houses.
Uhhhh, no. They are gambling houses. By definition.

The funds used to play the role of funneling money into venture businesses, but many degenerated into vehicles for speculative investments.
Venture businesses are speculative. By definition.
...where did he draw the line between accelerating reforms and entrusting his own money in an investment fund?

The market-oriented reforms closely involved corporate executives, such as the chairman of the Keidanren (Japan Business Federation).

In the process, top policymakers, including Fukui, could have lost their self-discipline, overstepping their boundaries in their relationships with businesses
I do not know where to start with this passage. It is so nuts it is practically North Korean.

Yes, Nishii-san, they could have lost their self-discipline---but did they?

"Market-oriented reforms closely involved corporate executives."

Gosh...that is suspicious. Businessmen with ideas about market reforms. If I had been in charge of market reforms, I would have sought out the opinions of inkan carvers, surfers and Elvis impersonators.

"....where did he draw the linebetween accelerating reforms and entrusting his own money in an investment fund?"

I think that Time did the drawing for him...since Fukui made the investment before he returned to public service.

Oh, what's the point...

I have tried to find the Japanese original of this rant but have so far been unsuccessful. If anyone sees it, drop me a line.

I am sure it's even crazier than the English version.


Gosh, it turns out that there are other reasons to make investments other than profits.

According to the Yomiuri Shimbun and others, BOJ Governor Fukui invested in the Murakami fund in order to "encourage" (gekirei) Murakami's efforts.

Now I always am in need of encouragement...and I once gave a presentation to Fukui during his Fujitsu Kenkyujo years.

Had I only known to ask...

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