Put the gun down...everybody just let's calm down, and nobody will get hurt

Dammit. I was wrong.

Back at the beginning of November, when I was feeling a bit bleak about things, I wondered aloud what  industry the crazed bureaucratic machinery of Kasumigaseki would hunt down and kill next. Food, I felt, was a likely contender, as it seems fairly clear that the general appetite for destruction of mostly innocent sectors is undiminished. Perhaps a tax on Michelin stars is now being mulled in the corridors of METI...

But, according to a piece in today's Nikkei, I was way off. The FSA, with typical blood-lust, wants to go after the entire financial sector. Nothing like going to the root of Japan's real problems. It's so car-crashy. It's like some fearsome Bond villain snickering over a plot to annihilate everything, but with no suave hero available to shoot him and snog his missus. The FSA (says the ever-mistaken Nikkei) is weighing-up new rules on how the banks calculate their core equity capital. Any securitized asset with large price fluctuation risks would be subtracted from the overall figure. Genius.

And what particular nut has the steamroller been called upon to crack? Ah yes, that will be US sub-prime mortgages - an admittedly dangerous asset class, but one that Japan has been shown beyond doubt that it is minimally exposed to. And it is in that relatively happy state chiefly because Japanese financial institutions were such timid little investors when the manky mortgages were being bottled-up and labelled as Triple-A champers. Japanese banks, and the quality of their core equity capital is really, really, not threatened by America's financial cack-handedness.

"By adopting a framework that reduces its Tier-1 core capital if a financial institution pours money into securitized products, the FSA aims to prevent Japanese banks from investing too heavily in such products." reads the frankly bone-chilling Nikkei article.

Yeeeees..... but, er, this bit of madness would fatally hit the banks' ability to raise money. Which is what banks need to do, especially Japanese ones.

I mean, where to start on the astounding intellectual poverty and short-sightedness of this idea? I'll have a go. 1) Surely the whole point of the sub-prime mess is that, for 99% of their lifespan, everyone thought that they were products with virtually no price fluctuation risk. Except upwards.  Yes, yes we know they were bad NOW, but then, Japanese banks are presumably not going to buy any more US mortgage packages NOW, are they? 2) Not a single Japanese bank has its back to the wall on sub-prime, but this proposal suggests they all do. Just like the new construction law suggests that every single architect and construction firm in Japan are liars and con-men. 3) Even the Japanese government knows that the Japanese banks weathered the sub-prime horrors well - after all, when all of the other central banks were flooding their markets with tens of billions in liquidity, the BoJ was sucking it out at an equally impressive rate.

Please. Somebody at the FSA. Just put the gun down. Let's all talk about this like adults and we're all going home in one piece.