Wednesday, November 05, 2008

Are they looking for currency reserves?

Are they looking for currency reserves?

Regarding the won: A lot of things are going wrong here all at the same time. Korea is a sandwich? Korean banks borrowed the money they lent to mortgage holders on open money markets with short-term high interest loans. Now those loans and interest rates are coming back to roost.

How do the Koreans feel about it? The Korean perspective appears to suggest that the fault of currency devaluation resides with foreign investors not understanding the Korean market and expressing their fears and uncertainties through FDI withdrawals as Luis Rangel at The Commodity Market Joural has suggested. This is a not unexpected local perspective.

This is an ultra-Confucian society of followers rather than leaders where the majority of investors rely upon real estate to provide the geese that lay golden eggs over the stock market which is perceived by many as gambling as 1997 provided the last largest example of fortune’s precipitated downturns. The government has swallowed up 150,000 unsold homes in an attempt to regulate housing prices which are falling. It may cost less to mail those keys home here as there are no fixed-term mortgage rates. They are re-negotiated annually.

These geese have been fed by local banks mortgage issuances on borrowed USDs from banks abroad with high credit interest rates and leveraged calls which pushed Korea into its last crisis. Luckily some of Korea’s creditors no longer exist? Is the world better off now with GM-Daewoo one of its few profit making subsidiaries?

The Korean reserves of won and USD have fallen nearly as far as they did during the 1997 currency crisis. Locals remember it as ,”The IMF Crisis” which makes the whole world look like an “IMF Crisis” at this time.

The sky is not falling -it fell. The fallout remains…?

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