If the Tokyo market is to trigger the crash of 1989 around the world, what is the factor that will set it off? If the crash is to come anytime soon, there is no need to look beyond the Recruit Cosmos shares-for-favours scandal. The most notable feature of the scandal is that it is grabbing headlines in Japan day after day. Financial scandals among politicians are to the Japanese what sexual pecadillos in the corridors of power are to the French. It costs so much more than the salary of a member of the Diet to hold onto one’s seat at elections that politicians have no alternative but to run enormous slush funds to pay for the presents that are mandatory at every significant constituent’s family wedding or funeral – and those with influence benefit from the system, so they are happy to let it continue. Why then has the Recruit scandal become a real threat to the government? Political factions attempt to exploit every financial scandal to embarrass the government, usually with little success or popular support. This time it is clearly very different, and the only explanation seems to be that after an almost unbroken 40 years in power, the Liberal Democratic party has finally lost the confidence of the public and there is a real popular feeling that it is time for a change. But the fact that the government is in peril suggests that its ability to engineer moves that would prevent a market crash are not what they are assumed to be – if it couldn’t manage a respectful note of sorrow in the Nikkei Dow Jones index at the death of the Emperor, how much less could it buck the trend of market forces. But the influence of the Recruit Cosmos scandal is not merely indirect. Mollify President Reagan If the crash of 1989 does come, it is likely its trigger will be able to be traced directly to two Cray Research Inc supercomputers. To mollify President Reagan, the government prevailed upon Nippon Telegraph & Telephone Corp to order four Crays for which it really had very little use – and up pops Hiromasa Ezoe, the ambitious founder of the Recruit Co group, who made his fortune by spotting a gap in the market for magazines stuffed with job ads. And Ezoe really is ambitious – and for good measure is a burakumin, the Japanese equivalent of a harijan or untouchable. Seeing NTT embarrassed over the supercomputers, he agreed to buy a couple of them for his bureau services arm, and for good measure, asked NTT to give Recruit a privileged position in the new market for value-added network services. NTT would have to sell him the Crays at very favourable prices of course, but the lure of deeply discounted shares in the Cosmos property firm about to be floated on the stock exchange was too big a lure to resist for the officials at NTT with which his company was negotiating, and the deals went ahead. Now NTT is no ordinary company: it has the largest capitalisation in the world – which means that it has to be a core share in every blue chip portfolio, and, no doubt most Tokkin funds. But the every growing taint of scandal – coupled with the fact that the competitive climate has decisively altered to NTT’s detriment have left the NTT shares, at the equivalent of about $12,000, a shadow of their former selves when they were riding high at over $23,000 apiece. That decline must make many funds look decidedly dismal performers, and to improve overall performance, managers will tend to take profits on the shares that have performed well. But what happens if word gets around that funds are in trouble and everyone tries to sell the same shares at the same time, and no-one wants to buy? Of course it could be that the Japanese have discovered the latter-day equivalent of the philosopher’s stone, and what goes up in Tokyo really will just keep on going up. Want to bet on it?
