Friday, December 09, 2005

Oops

One thing that Japan really isn't very good at is banking (UK residents who think their banks are bad, like those who think the National Health Service is good, should try living abroad for a while to realign their perceptions). Here's another blunder by Mizuho, throwing away a year's profits with a single typo. Until recently they were the largest bank in the world - they haven't actually thrown away enough money to drop to 2nd place, another mega-merger overtook them. Mizuho themselves were formed by a merger of several banks a few years ago, at which point their electronic systems crashed and no-one could access their accounts for a while.

Guess who banks with them? Yes, yours truly. But I'm thinking of upgrading to an under-the-mattress account for easy access and extra security :-)

3 comments:

Kooiti Masuda said...

I think that this event is a warning against the market of the contemporary world (not only of Japan) becoming so abstract that it is difficult to distinguish what is absurd from what is realistic.

Every week I find, and sometimes I myself make, similarly silly mistakes, but they are detected quickly, because they are about numbers representing some physical variables and we know the range of "physically possible" or "physically probable" values (though, for such variables as precipitation amount, the physical constraint of values is quite loose).

I think that it is good for market economy to recover its relationships with physical variables. This opinion may be out of mode of economics, but is supported by at least a few economists. I am reading (the Japanese edition, published last month, of)
Daly, H.E. (1996) "Beyond Growth: The Economics of Sustainable Development"
and I agree with most of points he raises (except his Christian belief).

Selling far more shares of a company than actually (legally) exist at once is surely absurd even in a highly virtualized market, and it should have been prevented even if the trader insisted that that was what he/she meant. I think that Japanese institutions will quickly fix such "bugs" as this once they identify them.

But another part of the error, 1 yen as the price, cannot be simply rejected, because it may have resulted from rational decision of an actor in the market, though obviously it is unsustainable by itself.
You can buy a mobile phone handset (not so fashionable one) by 1 yen.
The phone company will reclaim the cost from communication fees, or maybe from ads. The sales of hardware need not be self-sustaining.
Also, not so few major construction companies and computer companies have records of 1-yen bidding. The government sometimes makes tenders of design and of implementation separately. If a company gets the contract of design, probably it can make such design difficult for its competitors to implement. 1-yen bidding is a rational tactic given such situation. I think that it is the government's procedure that was silly in these cases.
Recently I saw news of its variant. Yahoo Co. offered to manage auctions for the National Mint Agency by 1 yen. The Fair Trade Council doubts its fairness, but the Mint Agency considers that that contract is valid.

Someone who wants to seize a company may first try to disrupt the price of its stocks by selling a lot of them cheaply ... certainly ruinous to the target company, but probably not illegal. I am not sure whether the market manager has a mandate to stop such behaviour.

P.S. News on Sunday (11 Dec.) says that a "bug" in the computer system of Tokyo Stock Exchange was partly responsible to the trouble. Mizuho tried to revoke the bogus offer, but the system did not work.

James Annan said...

Well, there are at least two failures here. There should be systems in place to block (or at least stringently check) orders that are more than a modest amount different from the market price. This is implemented in other electronic markets and I'm sure the Japanese will fix this immediately. There should also be the facility to cancel an unfilled order (and there was supposed to be, but it failed).

Of course fraud is harder to prevent - but careless mistakes shouldn't be able to have such catastrophic results.

Someone who wants to seize a company may first try to disrupt the price of its stocks by selling a lot of them cheaply ... certainly ruinous to the target company, but probably not illegal. I am not sure whether the market manager has a mandate to stop such behaviour.

This sort of behaviour is certainly illegal in the UK, and I would imagine elsewhere too. Of course it still happens. The Guinness case is one famous example - both for the events themselves, and for the "recovery" from Alzheimer's disease of one of the convicts involved - a medical miracle that surely has nothing at all to do with bent doctors lying to get their clients out of jail.

Kooiti Masuda said...

Actually the local rule of Tokyo Stock Exchange did not consider 1 yen as a valid price. But it did not entail that the transaction was invalid. Instead it was interpreted to mean the lower bound of valid prices, which was about 550000 yen (I do not remember exactly) in this case. I do not think such automatic interpretation makes sense in this case, but probably it had not made similar troubles before.