THE Japanese Government's frantic efforts to save the Long-Term Credit Bank (LTCB) of Japan last week displayed a blatant disregard for the nation's legal system. During this session of Parliament, the government had promised to come up with a proper legal framework for dealing with its banking sector problems. Instead, as events threatened to spin out of control, the government hobbled together a patchwork, last minute extra-legal rescue plan for the bank. In essence, the plan for LTCB is an extension of the failed policies of the past. The government plans to merge two sick financial institutions, Sumitomo Trust and Banking and LTCB, and promises to pump public money into them before it even knows the true state of their finances. The new Financial Supervision Agency blew a lot of precious credibility when its head, Masaharu Hino, told parliament he had received no report that the bank was insolvent. He also admitted his agency was way behind schedule and had not finished checking its books. The fact the agency is way behind schedule in examining one high-priority bank means it is unlikely to be able to examine the rest of the top 19 within any meaningful time-frame. What this means is that the government has written a blank cheque to rescue all banks without even knowing what the final bill will be. It also means it intends to bail out instead of liquidate Japan's large banks. To be fair, a disorganised collapse of LTCB would have sent other banks toppling like dominoes. Most of the companies it lends money to have also borrowed from other Japanese banks. If LTCB went under, other banks would suddenly have to write off their loans to troubled LTCB borrowers as well. Many could not afford to do so. A nod also has to be given to the drastic, by Japanese standards, restructuring it has imposed on LTCB. Nonetheless, none of the mergers between sick financial institutions the government has cobbled together in the past is doing well. All that has happened in these cases is that a few managers resigned, new signs were painted, the taxpayers take over the bad debt, and the same incompetent corporate culture continues unchanged. The United States has learned, at great expense, that rescuing large banks that are legally insolvent creates more problems in the long run than are solved in the short run. Japan looks set to learn the same lesson.