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To: John Hunt who wrote (12613)	12/31/1997 10:12:00 AM
From: Defrocked	Read Replies (2) \| Respond to of 18056

IMHO we are only halfway through the Far East difficulties at best. Consider the following news items, the associated implied risks, and my next post containing a "flowchart" for perspective. Wednesday December 31 1997 So.ChinaMailPost: (1)South Korea's four biggest conglomerates plan to sell 2.4 trillion won (HK$13.29 billion) of domestic bonds this week at interest rates near 30 per cent, betting interest rates will climb as the central bank shrinks the money supply and banks tighten credit. The 30% rate illustrates risk and desperation (2)J.P. Morgan proposed on Tuesday that banks exchange loans to South Korean financial institutions for Korean government debt with maturities of one, five and 10 years, the bankers said. Banks and the government are considering the proposal, although government officials said they would not guarantee the debt of the nation's banks JPM and other intl.banks are apparently demanding guarantees (3)Samsung Group and Daewoo Group, South Korea's second-largest and fourth-largest industrial groups, are asking their employees to sell their gold rings, necklaces and coins to help the country raise foreign currency. Talk about desperate.that's like GE and EXXON asking employees to hock private possessions to help shareholders stay afloat!

To: John Hunt who wrote (12613)	12/31/1997 10:18:00 AM
From: Defrocked	Read Replies (2) \| Respond to of 18056

The following FLOWCHART may help put the So.Korean and Far East situation in perspective.FWIW. (1)Hanbo Steel execs. get caught in common Far East practice of paying gov. officials, including son of So.Korean president. Hanbo is probably not alone and symptomatic,not the cause. "Eleven people, including the Hanbo chief and three key aides to the president, have been arrested on charges of taking or giving bribes in exchange for arranging improper bank loans to the bankrupt steel company, the nation's second largest. When Hanbo Steel collapsed in January, it had $6 billion in loans, more than 20 times the value of its collateral." (Source:www.sddt.com) (2)Credit squeeze catches So.Korean chaebols, banks and government. Overcapacity in many industries, including steel, coupled with need for dollars causes export of deflation,asset devaluation and compression of US expected earnings. (3)IMF establishes a $20 bln loan which is quickly expanded to a $60 billion bailout fund for problem estimated at $160 billion. (4)To avoid additional end-of-year credit squeeze, international banks are pressured to rollover short term loans to end of January. Banks are apparently demanding So.Korean, US/G7 governmental guarantees in return. (5)JP Morgan proposes "defeasance" structure that exchanges short term So.Korean bank loans for So.Korean gov.debt portfolio of various maturities. So.Korean officials state they will never guarantee debt of private Korean banks. (6)END OF JANUARY "SOLUTION" Some government must guarantee the So.Korean rollover plan since JP Morgan and other international private banks will not further gamble stockholders' money on very risky situation. After all, JP Morgan may be big, but they want to preserve their 9% cap/asset ratio supported by "only" $12bln in capital. The 30% rate now being charge to chaebols reflects the riskiness and potential discount any bank loans would suffer if "marked-to-market" without guarantees. (6a)Alternative One: IMF and G7 nations propose international defeasance fund NET EFFECT US/G7 taxpayers indirectly pay for So.Korean graft,mismanagement. RETURN TO TOP(include Indonesia,Thailand,China,other dominos) (6b)Alternative Two: So.Korea "guarantees" bank debt with IMF assistance. NET EFFECT US/G7 taxpayers indirectly pay for So.Korean graft,mismanagement. RETURN TO TOP(include Indonesia,Thailand,China,other dominos) PS I've considered adding a Step(7) DJIA contiunes to rally into riskier situation and lower earnings environment.<g>