If you wasted as much time watching Gilligan’s Island reruns as I did, you might remember the (now prescient) episode where the island was running dry of drinking water.
The Skipper assigns Gilligan the task of guarding the water well. While Gilligan sleeps on the job, the other castaways fetch out water to drink. When they are caught by the Skipper, he says they should be ashamed of themselves. Mr. Howell replies,
“I’m ashamed we got caught.”
Mr. Howell’s words came to mind as Nomura, Japan’s largest brokerage, was caught red-handed involved with insider trading. A Nomura trader bought $114,000 worth of Fujitsu Devices, later bought by Fujitsu in a deal Nomura advised.
But the real news isn’t that a Japanese investment bank was involved in insider trading, but rather that one erred in an unknown manner that angered bureaucrats enough to slap it back into line.
With Japanese finance, you have to read between the lines. Let’s look at Bloomberg’s coverage (I used to cover Nomura and other brokers for Bloomberg years ago).
Nomura … fell for a second day in Tokyo on concern it may lose customers after an employee was arrested in connection with alleged insider trading.
Japan’s Pension Fund Associates, which manages 13.2 trillion yen ($128 billion), said yesterday it stopped doing business with Nomura. Daiwa Securities SMBC, the nation’s second-largest investment bank, was forced to suspend some operations for a day after two former bankers were indicted for illegal trading in 2003.
Everything rides on that phrase “was forced”. But unlike some free-market paradise that would bring a smile to Adam Smith’s face, this force was an unseen hand that had nothing to do with markets and everything to do with bureaucracy. The government is punishing Nomura, as it did Daiwa.
It’s not that insider trading is more rampant in Japan than in other developed markets. Rather, companies don’t get punished unless they color outside lines that are drawn to benefit all players. We may never know Nomura’s real transgression, but whatever it was it’s now paying a dear price for it.
