Sharing isn't caring

22 April 2009 By John Foley Follow @johnsfoley

A planned emergency fund for buying shares would pad out the market but reinforce banks bad habits. History has left lenders groaning under $200bn of stock, which they don t seem keen to sell. The taxpayers money would be better spent buying shares directly from the banks.

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Japan's ruling Liberal Democratic Party has proposed a Y50 trillion ($500bn) fund that would invest in the stock market in the event of a perceived economic emergency. Plans would be submitted to parliament on April 27 alongside the budget to fund a Y15tn ($155bn) stimulus.

The scheme would only be put to work in extreme cases – such as when the majority of listed firms trading below their net asset value – and with the goahead of the prime minister. The government's fund would invest in a basket of shares such as an exchangetraded fund (ETF).

Japanese stocks fell to a 26year low closing price on March 9, though they had risen 26% by April 21. Falling stocks hit the balance sheets of Japan's domestically licensed banks, which hold some Y20 trillion ($20bn) in stocks, according to Bank of Japan data for March.

Sumitomo Mitsui Financial Group said on April 9 that it expected to take a Y220bn ($2.2bn) writedown on the value of its shareholdings. Mizuho Financial Group plans to cut its Y3 trillion share portfolio by around 20%, Japanese newspapers reported on March 26.

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