Grass-Roots Revolt.(business borrowers default in Japan)(Brief Article)

The audience leans forward to hear an answer to its woes. At the podium, author and retired banker Yoshiteru Iwai, a grandfatherly star on Japan's small-town lecture circuit, begins a spirited pep talk on how small-business owners can ease their debt burdens. He blasts his former banking brethren for abandoning mom-and-pop companies and "destroying" local economies, then suggests a decidedly un-Japanese response--a debtors' revolt. "If their strategy is to not loan you money," he tells the conclave of real-estate agents in Saitama, a distant Tokyo suburb, "your strategy should be to not return the money you have borrowed." Chuckling, he adds: "I don't mean that literally, of course." But, of course, he does.

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 ...