$5 Trillion Cash Pool Needed to Stop Financial Rout, Ohmae Says

By Bei Hu

Sept. 23 (Bloomberg) -- Treasury Secretary Henry Paulson's $700 billion plan to buy devalued assets from financial companies is ``a joke'' because it doesn't go far enough to calm markets, said Kenichi Ohmae, president of Business Breakthrough Inc.

Ohmae, nicknamed ``Mr. Strategy'' during his 23 years as a McKinsey & Co. partner, called for a $5 trillion ``international facility'' to be made available to financial institutions. The system could be modeled on one used by Sweden during its banking crisis in the early 1990s, he said.

``This is a liquidity crisis,'' Ohmae said at an investor forum hosted by CLSA Asia-Pacific Markets, the regional broking arm of Credit Agricole SA, in Hong Kong yesterday. ``The liquidity has to be so big that people won't get panicky.''

Paulson's proposal to remove hard-to-sell assets clogging the financial system marks the broadest intervention since at least the Great Depression. The plan came after the collapse of 158-year-old Lehman Brothers Holdings Inc. and the government takeover of insurer AIG Inc. caused financial markets to seize up last week.

Surging U.S. housing market delinquencies have led to more than $520 billion of asset writedowns and credit losses at the world's largest banks and securities firms since the beginning of last year, according to data compiled by Bloomberg.

Yesterday, Paulson and lawmakers narrowed their differences on the plan and agreed that the U.S. should get equity in participating companies.

`Viagra' Economy

Ohmae, 65, compared the current financial crisis with Japan's 15-year economic decline that began in 1989. Both started with a property bubble, which wiped out companies' equity when it burst, and like in Japan, the current one could lead to escalating bankruptcies as banks worried about their own survival rein in lending, he said.

The current financial crisis may lead to slower growth in China and the reversal of the commodity boom as ship orders are canceled and steel supply dumped, said Ohmae. What Ohmae called Japan's ``Viagra'' economy and Australia's ``dig and deliver'' boom may also fizzle as China weakens, he said.

Against the backdrop of a potential global market panic, Paulson's plan is insufficient, said Ohmae. Paulson is a former chief executive of Goldman Sachs Group Inc., the world's biggest securities firm.

``He wants to fix problems one by one as if he were still the chief executive officer of Goldman Sachs,'' he said. ``He has to take his CEO hat completely off and come up with a systemic solution as opposed to a one-by-one solution.''

One possible way of financing the $5 trillion facility would be through contributions from foreign exchange reserves of China, Japan, Taiwan, the Gulf states, European Union and Russia, Ohmae said.

Ohmae is the author of management books including ``The Mind of The Strategist.''

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net