Golden Spoon Investment Portfolio - Chapter 379

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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379. Japan will never help Korea.

September 15, 1997.
Seok-won, who was staying at home during the holiday break, stood before the floor-to-ceiling windows of his living room with a glass of whiskey on the rocks in one hand, gazing at the night view of the city while speaking with Landon Shore in New York.

[Did you see the headline about Korea that Bloomberg News released today?]
“You mean the one telling people to leave Seoul immediately.”
[I thought you might have seen it.]
“It said that non-performing loans, which have surged dramatically over the past three months, now account for 30% of Korea’s GDP, putting domestic banks in crisis.”
[Not just Bloomberg News, but the International Herald Tribune and the Wall Street Journal have also published articles suggesting that Korea faces a high likelihood of falling into a far more severe foreign exchange crisis than the Southeast Asian nations.]

Seok-won narrowed his brow slightly as he spoke.

“I heard the government sent a protest letter to American media outlets calling the reports false. But the fact that these articles keep appearing suggests their complaints aren’t getting through.”
[Even if they stopped publishing such articles now, it would be too late—the damage is already done.]

Seok-won’s expression turned bitter at Landon’s words.

“True. They’ve poured oil on a burning house. At this point, reversing the tide of foreign investment fleeing Korea is impossible.”

Indeed, the massive outflow of foreign investment draining from Korea like a receding tide had simultaneously devastated both the stock market and exchange rates, pushing the government—already locked in battle with currency speculators—into an even tighter corner.
When the financial markets opened and foreign hot money flooded in to drive up stock prices, it seemed beneficial, but now that crisis has struck, it has become a lethal poison.

[There’s talk on Wall Street that the Korean government might request assistance from Japan to overcome this crisis.]
“Japan holds the second-largest dollar reserves in the world after the United States, and there are many political and economic ties between them, so it’s certainly possible.”
[If Japan steps in, couldn’t Korea defend itself against hedge fund attacks the way Hong Kong has?]

Seok-won answered without hesitation, his denial immediate.

“Japan will never help Korea.”
[Pardon?]

At his definitive tone, Landon showed signs of bewilderment and countered.

[I’m aware that Korea and Japan have a troubled history. But surely Japan understands that if they simply stand by and watch, currency speculators might target them as well. Would they really do nothing?]
“As you point out, it would be difficult for Japan to push other Asian nations, including Korea, into a full-blown foreign exchange crisis. But they could exploit the economic downturn caused by stock market crashes and deteriorating conditions—hedge funds might even shake the yen in the process.”

Japan had made the largest investments in the Southeast Asian nations devastated by the foreign exchange crisis, so there was no way to avoid the fallout.
The moment Thailand and Indonesia’s economies collapsed, Japanese companies exporting goods to these Southeast Asian nations saw their performance plummet.
The financial sector, following suit with corporations, had invested heavily in Southeast Asian nations and suffered enormous losses in this foreign exchange crisis.

In a sense, it wouldn’t be wrong to say that Japan, along with other Asian nations, had been fleeced just as it had been after the Plaza Accord.

Before I understood these underlying circumstances, I had mistakenly believed that Japanese capital, along with hot money, had withdrawn en masse, pushing Korea further toward the precipice.

Of course, it was true that the large-scale exodus of Japanese capital had negatively impacted the exchange rate.

But rather than deliberately trying to push Korea into crisis, the more accurate description was that Japan was too busy looking after itself to spare any attention for others.
Looking at the Nikkei index, which had plummeted dramatically compared to the beginning of the year, one could clearly see how dire Japan’s situation was.
Perhaps Japan had fallen into the deep quagmire of what would become known as the Lost Decade, staggering from the collapse of the bubble economy and then taking successive counterpunches from the Kobe earthquake and the Asian financial crisis.

[Wouldn’t Japan help Korea precisely to prevent that?]

Seok-won stopped his thoughts and calmly explained why he believed otherwise.

“You know that when the foreign exchange crisis first broke out in Southeast Asia, Japan tried to intervene directly because it had made substantial investments in that region.”
[Of course.]
“At that time, the United States, wary of Japan expanding its influence in Southeast Asia, applied the brakes by telling Japan’s cabinet not to act alone but to seek support through the IMF.”

Landon Shore let out a low exclamation and spoke.

[So you’re saying Korea will face the same situation.]
“Exactly. And on top of that, unlike back then, Japan doesn’t even have the capacity to intervene now.”
[With the Nikkei in freefall and the Japanese Prosecutors investigating collusion between the Ministry of Finance and banks, they’re too preoccupied to pay attention to anything else.]
“That’s precisely what I mean.”

Seok-won nodded as if confirming the correct answer.

[Since we’re on the subject, you’ve probably heard that Yamaichi Securities entered into a CDS option contract with us, suffered massive losses, and when they tried to hide it, the exposure led to prosecution investigations that uncovered additional accounting fraud.]
“Of course. That’s why the prosecution’s investigation into the financial sector expanded.”
[Exactly. As a result, the stock prices of Yamaichi Securities and other Japanese securities firms plummeted, significantly dragging down the Nikkei.]

The Eldorado Fund, which had shorted the Nikkei, was generating substantial profits thanks to the sharp decline in Japan’s stock market.

[But now that the KOSPI index has fallen below 500, the option conditions for even the third and final contract haven’t been met, have they?]
“That’s right.”
[And with rumors already circulating that we might default, this massive loss could very well force us to shut our doors.]

Seok-won’s brow furrowed slightly as he posed his question.

“If I’m remembering correctly, of the 4 billion dollars in CDS option contracts we signed with Yamaichi Securities, half—2 billion dollars—was tied to the KOSPI, correct?”
[That’s correct.]
“Given the deteriorating situation, can we actually collect the money?”
[That’s why I’ve instructed our Japan branch to demand payment as a top priority.]

Seok-won’s eyes remained narrowed as he spoke with decisive firmness.

“If they drag their feet and delay payment, immediately file for a court order to seize Yamaichi Securities’ real estate holdings.”
[Surely you don’t actually believe Yamaichi Securities will default?]

At the surprised question, Seok-won’s voice dropped to a more somber tone.

“Even if they’re one of Japan’s Big Four Securities Firms, losses large enough to be unmanageable would inevitably bring them down.”
[That’s true. Under normal circumstances, perhaps not, but with accounting fraud amounting to hundreds of billions of yen now exposed, they may indeed be unable to weather this, as you say.]
“Exactly. So take precautions now to ensure we can recover our money even if they do default.”
[Understood. I’ll handle it as you’ve instructed.]

Seok-won swirled his glass of Underberg gently, then took a measured sip of whiskey.

“In any case, beyond those internal circumstances, the Japanese cabinet might very well use Korea as a scapegoat to prevent the fallout from spreading further to Japan.”
[A scapegoat, you say?]

Landon Shore asked, his tone tinged with confusion.

“Exactly. Why do you think America, while blocking Japanese intervention, is deliberately forcing Asian nations facing currency crises to seek IMF support?”
[Isn’t it to use this crisis as an opportunity to modernize Asia’s closed financial markets?]

Seok-won shook his head, his expression cold and unyielding.

“That’s merely a plausible excuse. The real aim is to forcibly open financial markets, expand Wall Street’s influence, and strengthen dollar hegemony.”
[Of course, such intentions are certainly lurking beneath the surface.]
“But America wouldn’t want a situation where a nation with Korea’s economic scale faces default, Japan—the world’s second-largest economy—is shaken, and the situation spirals beyond control.”
[Naturally not. The goal is to extract profit, not to destroy the global economy.]

Landon, who had been answering casually, suddenly let out a short exclamation at a thought that crossed his mind.

[So you’re saying that by making America feel the crisis, Korea will be left to sink into a foreign exchange crisis so that the United States will step in and resolve the situation.]
“Exactly. We need an appropriate sacrificial lamb to move the sluggish Americans and fill the bellies of hedge funds that are furious after suffering massive losses in Hong Kong. And that sacrifice is Korea.”
[Viewed that way, it certainly seems Japan has no reason to help Korea.]

Seok-won held the phone to his ear, his expression turning bitter.

“Japan may have already completed these calculations.”
[I find myself feeling somewhat sympathetic toward the Korean government officials who will go asking Japan for help without knowing any of this.]
“It’s the price of failing to properly grasp the rapidly unfolding external situation and letting their guard down.”

Though I felt emotionally sorry about it, my judgment remained cold.

[If Korea fails to receive help from Japan, its last hope, then ultimately it will have no choice but to request assistance from the International Monetary Fund.]
“That’s the only way to avoid the worst-case scenario of declaring default.”

Landon made a humming sound as he spoke.

[If Korea must inevitably turn to the International Monetary Fund, it would be better to raise the white flag as soon as possible and abandon efforts to defend the exchange rate. I’m not sure if the Korean government will be able to make such a swift decision.]

Unless they could preserve the exchange rate, spending down foreign reserves in a futile defense would only end up burdening the people with debt later.

“I wish that were the case, but with a presidential election looming, they won’t be able to declare surrender until the treasury is completely depleted.”
[The moment they announce the International Monetary Fund bailout, it’s essentially the same as confirming their defeat in the election and handing over power, isn’t it.]

The timing of the hedge funds’ attack was particularly terrible.
I wondered what might have happened if it weren’t during the presidential election period and if the Blue House and senior officials had exercised slightly more wisdom, but such thoughts were merely idle imagination at this point.

“Once the Korean government raises the white flag, we’ll need to move funds immediately, so prepare to transfer dollars whenever necessary.”
[How much are you planning to use?]
“Even if we only take the cream of the crop, we’ll need quite a substantial amount.”
[So the loans you took out using stocks as collateral last time were for this purpose.]
“That’s right.”
[Understood. I’ll secure as much liquid capital as possible to ensure there are no disruptions to your operations.]
“Thank you.”

After ending the long call, Seok-won slipped his phone into his trouser pocket and gazed out the window with a contemplative expression, lost in thought.
The beautiful night view sprawling before me felt like the final glimmer of something about to fade away, leaving a bitter taste in my mouth.
Seok-won’s eyes darkened as he tilted the glass of whisky to his lips.

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This chapter was translated by Lunox Novels. To support us and help keep this series going, visit our website: LunoxScans.com
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