[View point]No time to gloatIn early December of 2000 I filed a series of stories on the international financial market from New York. I went there to collect information for a series of articles carried by the JoongAng Ilbo under the title, “Advanced financial techniques, this is the standard,” during the New Year holiday season.
Investment banks in Wall Street were robust and prosperous at that time. The Asian financial crisis that swept many countries towards the end of the 1990s provided a stage solely for investment banks. They made astronomical amounts of money by buying and selling corporations and financial companies that poured out on the market at extremely cheap prices, or by selling new financial products called derivatives.
Those investment banks were an object of envy to the Korean financial companies, which realized the power of Wall Street since the financial crisis broke out in 1997. I felt a cross of two emotions as I reported on investment banks. On the one hand, their assertive attitude made me feel sour, but on the other hand, I felt a sense of awe, even beyond envy, seeing the power of Wall Street’s financial empire that exerted a sweeping influence over the world of international finance.
But everything has changed in just eight years.
Wall Street investment banks that used to make us feel inferior are now holding on to Asian funds, from Korea to the Middle East, for dear life. The fate of Wall Street investment banks hung on the words of the president of Korea Development Bank, when the latter was in negotiations to purchase Lehman Brothers. Nobody in New York could have imagined such a situation barely eight years ago. No matter what the sparrows in Wall Street chattered on the issue, it gave us a feeling of satisfaction.
Even, putting aside all emotion, thinking about the benefits and losses cool-headedly, it still makes us feel satisfied. Korean financial companies have benefited with an advertising effect worth tens of millions of dollars. It is not easy to get such an opportunity to go through the account books of the top five international investment banks. It was like going into the master bedroom of the high and mighty to see the fortunes and valuables inside. The information gained from this is difficult to calculate in money terms.
That was all right. However, the recent behavior of the Korean government and Korea Development Bank makes me feel uneasy. I fear they might wrongfully think that the sudden change in the situation has come about because Korea did something well.
Right after the negotiations with Lehman Brothers broke off, Min Yoo-sung, the president of Korea Development Bank, said, “Lehman would not have gone into bankruptcy if it had listened to us.” How so? American International Group (AIG), which was said to be in a much sounder situation than Lehman Brothers, received a $85 billion relief fund from the Federal Reserve, but it is still in grave condition. It would be a surprise if Korea Development Bank has indeed accumulated a bigger financial capability than the Fed.
As far as the ability to foresee the future of the financial market is concerned, the government is as incapable as Korea Development Bank. When the rumor of a “September crisis” circulated in the market, the Ministry of Strategy and Finance rushed to New York and knocked on the doors of Wall Street. It said the government would sell $1 billion worth of government bonds to investment banks in Wall Street to secure liquidity.
However, when the crisis talk died down, the administration quickly changed its tune. It canceled the plan to borrow money from Wall Street, saying, “Their interest rate is too high.”
Only two days later, Lehman Brothers filed for bankruptcy and Merrill Lynch was sold to a commercial bank. Sounds of people crying in agony could be heard not only in the foreign exchange market, but also in the bonds and stock markets, too.
The situation at home that made HSBC, the largest bank in the world, give up its plan to buy a majority stake in Korea Exchange Bank, is even more of a pity. The sale of Korea Exchange Bank to HSBC had, from the beginning, nothing to do with the controversial litigation against Lone Star, which is suspected to be leaving the country after making excessive profits.
But the Financial Services Commission kept on holding on to the application for government approval as it watched to read the tide of public opinion. It is frustrating because the government, which should have gone out to invite investors, has chased away a wealthy client who came with bundles of money. Indeed, the Financial Services Commission authorized eight new securities companies when the stock market is having such a hard time this year. So, what can we expect from it?
It was not because we did something well that we could hold our heads high now. We were just lucky. If we misjudge the situation by being carried away with the mood of winning a goal in the beginning, we will face the consequences.
The game starts now. It is not the time for us to watch the crisis in the United States as a fire on the other side of the river. Have we already forgotten the pain of the 1990s financial crisis that we had to face after shouting out that the fundamentals of our economy were fine?
*The writer is a deputy business news editor of the JoongAng Ilbo.
by Jung Kyung-min