World

Asia's Ailing Tiger

By CBSNews.com staff CBSNews.com staff

October 5, 1998 / 6:53 PM EDT / CBS

Long Term Credit Bank is the bank everyone is watching, reports CBS News Correspondent Barry Petersen.

It is one of Japan's biggest banks, and it is expected to go bankrupt any day now. The Japanese government has set aside billions to cover the losses, but Long Term Credit may not be alone.

Japan's major banks -- the foundation on which Japan Inc. was built -- are weakened by heavy debts, which are the hangover of bad real estate loans and failed business deals from the high-growth 1980s.

In comparison to Japanese banks' trillion-dollar debt, the $150 billion failed U.S. savings and loan debts in the 1980s were much smaller -- with a far larger U.S. economy absorbing the losses.

Japan's banks once dominated the world. The cash crisis means some may be kicked out of the world banking game -- they may not have enough cash for the reserve of 8 percent against outstanding loans required for international banking.

Inside Japan, the ripple effect is crushing Japan's economy. Banks have no cash to loan to businesses for supplies or inventory -- it's like cutting off the air supply. Japan Inc is slowing down -- with one exception: bankruptcies are on the rise.

The Japanese government is still not sure how to get cash into the banks. However, one thing is sure: as long as the bank crisis pulls down Japan's economy, the chance of recovery for the rest of Asia is somewhere between slim and none.