[Overseas view]When giants stumbleTwice in my life I was a millionaire. The first time was when I landed in Rome as a tourist and exchanged $500 when the lira was 2,000-to- $1. A cool million, if only in lire.
Then, seven years ago, I came to Korea with the dollar at 1,250 won and, even as the dollar sank, spent six working years as a multimillionaire, paid in won. I never could quite bring myself to light my cigars with paechunip ― green “cabbage leaves” ― or 10,000 won notes. Partly this was because I didn’t smoke cigars. Nevertheless, I enjoyed the feeling of having millions at my disposal ― albeit in won. It was the closest I will ever get to being a rich fat cat.
Now the shoe is on the other foot. Back in America, I am a multimillionaire no longer, and my country is practically a global laughingstock.
The American economy is dragging, the stock market is diving, the trade deficit is hulking, the budget deficit is phantasmagorical, consumer confidence is suicidal, the property market comatose, and the dollar resembles comical currencies of yore, such as the Italian lira and the Argentine peso.
Luckily, poor little America is being rescued by its friendly big brother Korea. And other big brothers, including Singapore, China, India, Saudi Arabia and Japan. Hmm! Those are Asian and Middle Eastern countries, aren’t they?
They are buying stakes in corporate America, in many cases through sovereign (government-controlled) agencies. Why? Because of the losses many American businesses are sustaining through their investments in the recent housing bubble in America.
Example: The enormous American financial-services firm Merrill Lynch has had to write down about $15 billion ― so far ― in phantom assets, loans and investments mostly related to the soured mortgage market. Suddenly, Merrill Lynch is a wounded giant.
But not to worry: Korea to the rescue. The Korean Investment Corporation, supplemented by the Kuwait Investment Authority, both state-owned entities, and the Japanese Mizuho Corporate Bank, will invest $6.6 billion in Merrill Lynch. (Goodness gracious! What is that? Roughly 7 trillion, yes, 7 trillion won). Last month Merrill sold another $6.1 billion stake in itself, mostly to the government of Singapore.
Singapore’s government investment fund is also injecting money into another U.S. financial giant, Citicorp. And, thanks to the cheap dollar, other countries and foreign investors are snapping up cheap assets in the United States.
Is this the beginning of the end for America?
We have seen similar alarms before. In 1991, it was clear (to American pundits) that Japan’s economic surge would make it the paramount country in the 21st century. Newsweek magazine, on the 50th anniversary of the Pearl Harbor attack that touched off the Pacific war, published an extrapolation purporting to show that Japan would overtake the United States by about now to become the world’s leading economy.
It didn’t happen. As Newsweek went to press, Japan had already entered a decade-long economic doldrum, and the United States had just begun what turned out to be the longest economic boom in its history.
But at the time, Americans feared that the prediction might come true. Japanese companies bought an American movie studio and, worse yet, Rockefeller Center, the quintessential symbol of American urban dynamism when it was built in the 1930s. Many Americans reacted with nationalistic fury. My own congressional representative, Helen Delich Bentley, and several colleagues, staged a media event on the steps of the Capitol, swinging sledgehammers and smashing Toshiba television sets and other Japanese products.
Then there was the Korean case. Only a decade ago, Korea was overextended ― remember the financial crisis of 1997? Strangely, this is known in Korea as the “IMF crisis,” as though poor little Korea was victimized by the big, bad, beastly International Monetary Fund, which callously lent money so that Korea could fix its problems.
Korea, of course, did not appreciate this. Nor was it grateful to foreign investors. When Lone Star, for example, spotted an opportunity in the belly-up Korea Exchange Bank, the Korean government was happy to take its money. But when the investment turned profitable for Lone Star, Korea turned on its rescuer. The prevailing sentiment was that foreigners have no right to make money in our dear Korea.
Let’s hope that Americans will be more gracious to their rescuers. There are ominous signs, mostly related to the “sovereign,” or state-controlled funds. This is not market capitalism, critics say, but state capitalism. States may invest or withdraw funds for political considerations.
Nevertheless, what is happening is an illustration of one of the benefits of economic globalization. When countries get into trouble, foreign investors look for bargains. Their support helps maintain employment and economic activity, and hastens the troubled country’s recovery. Of course, the benefits accrue only to countries that participate in the global economy. Tough luck for North Korea.
*The writer is a former chief editor of the JoongAng Daily.
by Harold Piper