Only a decade ago, Japan's monster banks seemed poised to take over the world. These days the fear is they could collapse, and bring the world down with them. To understand how these mighty banks have fallen, consider the saga of a real-estate tycoon known as the "Bubble Gentleman" and his marriage of convenience with a bank that once stood at the pinnacle of the nation's financial sector: the Long-Term Credit Bank of Japan.

It is a tale of greed, ambition and multimillion-dollar deals sealed with crates of French wine and fine champagne. The bit players range from reckless bankers to Finance Ministry mandarins with a weakness for geisha and fine sake. And at the center stands Harunori Takahashi, a blue-blooded descendant of feudal lords. Nicknamed Baburu Shinshi, or Bubble Gentleman, Takahashi became synonymous with the frenzy of land and stock speculation a decade ago that gripped all of Japan, including banks like LTCB.

Since it began edging toward collapse this summer, LTCB has been a litmus test of Japan's resolve to tackle its banking crisis, after years of dithering. Last week LTCB became the first Japanese bank to be nationalized since World War II. The move was part of a broad package--including banking-law revisions and a half-trillion-dollar rescue plan--that Tokyo hopes will restore confidence in the country's rickety financial system. LTCB's demise as an independent institution is a sure sign that the authorities no longer will prop up every sick bank, however big. LTCB executives have all been sacked, and the bank no longer poses risks to financial markets.

But Japan isn't out of the woods yet. Even the banking rescue package does little to address the lack of transparency, accountability and plain prudence that got LTCB and so many others into such trouble. The public still doesn't know exactly what went wrong at LTCB. The government continued to pretend the bank wasn't bust until it asked to be nationalized. Efforts to fix other problem banks are moving even more slowly. Some will be allowed to accept public handouts without having to fire their top managers--Japan's opposition pushed for tougher rules but failed to nail them down. And since the banks aren't being required to reveal the true state of their finances, they can use the public money to plaster over holes in their balance sheets instead of restructuring. "They are putting new wine into old bottles," says Ryuji Konishi, a former LTCB managing director.

The next few months will be critical. If banks start using public money to write off bad loans, they could begin to return to health. But that would mean cutting off lifelines to ailing construction companies, which support the ruling Liberal Democratic Party and provide millions of jobs. The banks may prefer to keep stalling. Says Seiji Otsuka, a banking analyst at Schroders Japan: "The question is: Is Japan ready to accept the pain?"

Japan was going through another rough patch when LTCB opened its doors in 1952. With Japanese companies supplying war materiel to U.S. troops fighting in Korea, the country's war-devastated economy was finally showing signs of life. But Japan's economy still had a long way to go. There were no bullet trains and no television; most homes in Tokyo didn't have flush toilets, or even baths. The government created the bank to funnel long-term loans to industries like shipbuilding and steelmaking, seen as the building blocks of recovery.

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