Japan to Tap Taxpayers for Bad-Debt Bailout : Banking: Plan follows measures used in the U.S. savings and loan crisis.

In a first step toward confronting Japan’s bad-debt hangover from the 1980s, the government announced a plan Tuesday to spend taxpayers’ money to help bail out troubled mortgage companies.

Finance Minister Masayoshi Takemura defended the bailout plan, which is sure to draw fire because $6.8 billion in it would come from public coffers.

“The financial system is an artery of the Japanese economy, but that area is saddled with massive problem loans and suffering from cancer,” Takemura told reporters. “A drastic surgical operation is needed to remove the tumor.”

The plan follows the $90-billion taxpayer bailout of the U.S. savings and loan industry, a crisis brought on in large part by bad real estate loans. The Japanese bailout was approved in a special Cabinet session late Tuesday.

Government officials rushed to get the appropriations written into budget legislation that is to be submitted to the various ministries today.

News that public money would be needed to bail out seven of the eight housing loan corporations, or jusen, was leaked to local news media Sunday night. The seven jusen are holding about $75 billion worth of unrecoverable debt.

A recession and relatively low property prices have dogged Japan for nearly four years, riddling Japanese lending institutions with debts. The resolution of the mortgage company crisis is sure to be just a prelude to the eventual tackling of massive bank debts.