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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Worswick who wrote (1822)	2/1/1998 4:35:00 PM
From: Rational	Read Replies (1) \| Respond to of 9980

Worswick: Actually, most (if not all) of the short-term Korean bank debt is rolled over. This leaves the Korean corporate debt which the government refuses to guarantee, as in Indonesia. The IMF, US Congress and most economists are opposed to bailing out the greedy creditors, lest it will perpetuate moral hazard. A correct market solution is to not bail out bankers and investors, although the bankers are exerting enormous pressure on US politicians for help. Actually, it turns out that these creditors' actions were some of the main causes of a collapse of the currencies in Asia; it was a prisoners' dilemma that trapped everyone. First, European/American/Japanese bankers competed to form beelines in SE Asian corporate houses to lend and lend only short-term credits for a fast exit; on the first sign of trouble they all tried to exit enmasse. I have no defense for the corrupt SE Asian governments. But, how can the government or anyone plan for these mutual deals between private parties in a global economy that is increasingly becoming market oriented? Such failures of free-market principles (given the potential for an irrational herd mentality) is very well known in economics. To prevent such failures in future, there should be no governmental bailing out of creditors and the borrowers should agree to repay the loans in local currencies at a rate prevailing before the stampede by creditors. Most sophisticated bankers/creditors had hedged against currency risk -- basically short-selling the local currency at the time of extending credit. [This short-selling started the currency slide.] These bankers have made tons of profit even after accounting for repayments at the exchange rates that prevailed before the collapse. Sankar