Adam Posen on lessons from Japan

Paul Krugman quotes Adam Posen talking about lessons we should learn from Japan's efforts to recapitalize their banks during the lost decade of the 1990s. Posen underscores the risks involved when these efforts are not accompanied by equity stakes or enhanced regulation:

The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized. Pretending that distressed assets are worth more than they actually are today for regulatory purposes persuades no one besides the regulators, and just gives the banks more taxpayer money to spend down, and more time to impose a credit crunch.

Indeed.

Given depressed share prices, the big five Canadian banks are currently paying historically high dividend rates. Andrew Willis of the Globe and Mail tells how BMO is paying an historically high 10.8% that will capture 80% of earnings. Why?