Iwai offers a rarely heard perspective on what ails Japan: the little guys. As told by Iwai and his followers, the real villains of Japan’s 1980s bubble economy were banks that actively encouraged borrowers to accumulate massive debts. When the bubble burst in 1990, big banks worked hard to keep the biggest borrowers alive. Smaller lenders, however, began to call in old loans and to refuse new ones to small and medium-size enterprises, or SMEs. The result was a credit crunch that forced 19,000 companies into bankruptcy in 2000 alone. In the latest of his seven books, Iwai predicts that some 250,000 SMEs now teeter on the brink of ruin and could “destroy traditional Japanese culture” if they fall.
The Iwai rebellion erupted in 1992, when he authored a magazine article called “Bankruptcies by Forced Repayment.” Since that time he has run a tiny consulting firm from a two-room Tokyo office staffed with retired bankers, and has helped several hundred clients shed loans and avoid bankruptcy. His method is simple: shelter as many assets as possible, try to renegotiate loans and, if that fails, halt payments, surrender collateral and “reincarnate” the company as a new entity controlled by friends and relatives. The key is to limit repayment to collateral, which is often held in land or other assets of now rapidly shrinking value. In effect, Iwai screws the banks by sticking them with the increasingly worthless assets of the bubble economy, still deflating 12 years after it burst. “I don’t think ‘screw’ is the right word, but I would like us to question banks’ responsibilities,” says Iwai. “Japan is a country where the banks are not punished for what they have done.”
The Iwai strategy appears to have worked for Daisaku Okamura, a small developer in Chiba. He pulls out a hefty ledger to illustrate how his family firm’s debt troubles began in the late 1980s. “The banks would come to us and say, ‘Here’s a piece of land. We’ll loan you money so you can buy it’,” recalls Katsusuke, his elder brother. “They would lend us 120 percent of the land’s value.” As the Okamuras madly bought and sold land and buildings, their sales volume tripled in 1987 and doubled in 1988, to reach a peak of 5 billion yen ($50 million). By the time the bubble burst, the family found themselves $140 million in debt. They sold land to pay off half the loans, but still faced bankruptcy.
On Iwai’s advice, the Okamuras established a new firm, took all their cash out of their banks and then defaulted on the remaining loans. The banks auctioned off the Okamura lands they held as collateral, but that brought in just 2.3 billion yen, leaving the banks with 4.7 billion yen in losses. “The banks may think otherwise, but as far as we’re concerned we don’t have loans from them anymore,” says the elder Okamura, who declines to identify the banks. “Our debt problem is solved.”
Many Japanese debtors are now looking for a similar end to their troubles. In October Japan’s 40,000-member National Association of Medium and Small Enterprises launched a petition drive for a “financial-assessment law” that would aid small businessmen in battles with banks. Its provisions include debt forgiveness and easier access to new credit. “Companies that should live are being killed,” says Masaharu Kuniyoshi, the association’s executive director. This week a consulting firm, the Japan Business Club, sponsors a conference on “How Banks Will Crush 300,000 SMEs.”
This populist call to arms is not necessarily supported by Japan’s populist prime minister, Junichiro Koizumi. The reformers in his inner circle tend to argue that debt is often symptomatic of declining performance; many small companies simply can’t compete as globalization opens Japan to foreign competition. “You can’t say that all SMEs are inefficient,” says Akio Mikuni, president of bond-rating service Mikuni and Co. in Tokyo. “But it’s true that many small companies have outlived their economic usefulness.” Sticking it to the banks may be satisfying, especially when so many large debtors are let off the hook. But perhaps some of Japan’s small fry should be forced to fail.
