Here is my response to the 2012/04/16 post from Richard Katz in response to my 2012/04/12 response to a question in his 2012/04/12 comment, "Why didn't Japan apply a cap? The reason, I've been told, is that to put in such a cap would be to admit the possibility of accidents; and the nuclear village did not want to admit that possibility", which he has moved on from in his latest comment. Good. Now:

Rick writes:

"As for the compensation cap, in the latest Oriental Economist, former Toyo Keizai editor Yoshisuke Iinuma
writes:

'For its part, the MOF feared that compensation would become the government's responsibility, creating a huge financial burden. Thus MOF Vice-Minister Eijiro Katsu and other bureaucrats made the rounds, telling politicians the two things that it was essential to avoid. First, a cap on TEPCO's compensation responsibility, which would mean that its hidden debts would become the government's responsibility, due to political pressure to help the victims. Second, TEPCO's legal bankruptcy would shift its compensation responsibilities onto the government.'

So, MOF appears to believe that there is no cap, despite the Y120 mandate for insurance and the provision that I cited above. That's why I say it's ambiguous to me."

This story jibes with what the media is telling us about what MOF's concern is and essentially says that the government would be stuck with the bill anyway if TEPCO's liability is limited, by cap or "legal bankruptcy"-an assessment with which I concur. But "legal bankruptcy" runs the gamut from simple liquidation to various forms of restructuring, just as it does in the US and, presumably, most of the known capitalist world. So TEPCO could go legally bankrupt, force most stakeholders to take a cut except, among others (if I remember correctly from some classes that I took too many years ago) tort claimants. And the government could make the same arrangement to compensate nuclear disaster victims as it has wound up doing-stuck with the bill in the sense that it is the guarantor of last resort and pays opportunity costs unless it gets its paid-in money back with interest-with the crucial difference that the government's burden would be eased to the extent that other stakeholders (pensioners, banks, bondholders,
etc.) have to take haircuts. That sounds like a better deal for the government (but not for the shareholders if they see their equity cut back, potentially to zero). However, such an outcome could have done serious harm to the Japanese financial system while the Japanese economy was struggling to recover from the Earthquake while withstanding the shockwaves from the financial crisis; if avoiding that would wind up benefiting financial institutions (and TEPCO pensioners), that was going to be the price to pay for saving the financial system from systemic failure (shades of the Bush and Obama administrations, and the EU). Or so MOF might have reasoned. In any case, the government's best intentions could have been thwarted by a lawsuit, much more likely if TEPCO went into bankruptcy, that successfully forced an Article 3 declaration; hence the arrangement that wound up being installed. (Note that I've significantly expanded and in the process modified my original comment. Note also that I have so far not responded here to what appears to be Rick's emphasis on the ambiguity of the cap. Yes, he's right, which, if you come to think about it, is the basis of my considerations as well.)

Finally, one point in Rick's narrative, where he says:

"As for the series of financial injections under the Nuclear Damage Liability Facilitation Fund, I've seen press reports--which could be wrong--that TEPCO is obliged to pay back that money from future profits. But the specifics here are also unclear to me, especially if the govt turns that injection into 2/3 ownership of common shares. By the way, the act also says that, in case of bankruptcy, victims stand in line ahead of other creditors like banks"

I've looked through the Nuclear Damage Liability Facilitation Fund Act (Act No.94 of 2011) but I haven't found anything in there to that effect. (Of course the money obviously can only be used to pay damages. I'm not sure how that would be secured in the case of bankruptcy, but it would not be difficult to create legal devices to do just that without any specific legal provisions. In any case anyone needs to know, just ask the authorities.) The Act on Compensation for Nuclear Damage (Act No. 147 of 1961) does say that the
120 billion per establishment insurance/guarantee money must first go to the victims. Of course, as a non-lawyer, I stand ready to be corrected.