The Son of Finance of the Great Age

  Chapter 288 Too big to fail (1)

  Yes, Stevenson and his group are the pioneers of Tiger Fund. They investigate the Korean market by disguising their identities, including large enterprises and the domestic economic situation, and prepare for shorting the Korean won in the future.

  In fact, with the exception of Tiger Fund, basically well-known Wall Street hedge funds sent analysts during this period to conduct highly intensive research on the Korean economy. These analysts not only visited the senior management of large conglomerates, but also closely interacted with people in the Korean financial circles, trying to find out the possibility of supporting the depreciation of the Korean won through systematic intelligence collection and analysis, or the shortcomings of the Korean financial system, so as to We can take advantage of these weak links to find a possibility of impacting South Korea's exchange rate system.

  The current exchange rate system in South Korea is a daily limited adjustment mechanism, that is, relative to the closing price in the market the previous day, there is a limit for the next day's exchange rate fluctuations. This exchange rate system does not have a fixed target range, and is a compromise between the fixed exchange rate system and the floating exchange rate system that currently exist in the market.

For example, if the average closing price of Korean won to U.S. dollar is 800:1 on a certain day, and the fluctuation range stipulated by the Bank of Korea is 1%, then the fluctuation range of Korean won to U.S. dollar on the next day is between 792:1 and 808:1. float. If the closing price of this day falls to 805 won to 1 dollar, then the price range of won to dollar in the next trading day will be between 796.95 and 813.05.

  This kind of exchange rate system is not free floating, so there is naturally the possibility of being attacked. If the Korean won fluctuates beyond the limits set by the Bank of Korea, the South Korean side is obliged to intervene. As long as central banks intervene, attacks on exchange rate regimes are possible.

It is precisely because Quantum Fund has gone too far in Southeast Asia that the entire East Asian region is deeply wary of American hedge funds and international hot money, especially when the Prime Minister of Malaysia directly denounced Soros as an "idiot", and the acting Prime Minister of Thailand even declared that In the case of using the mafia to kill Soros.

It is precisely because of this that Billy Kim, who is well-known in South Korea's financial circles, did not go to South Korea in person. Instead, he sent a few unfamiliar faces to investigate the South Korean economy with the help of disguised identities, because Billy Kim is well aware of how paranoid South Korea is and its society. If Billy Kim's identity is exposed, he will probably never set foot on South Korean territory again for the rest of his life.

   This is definitely not alarmist talk. In fact, there is a singer in South Korea who is as popular as ever. He is a household name in Korea and his career is as good as Japan's. It was only later that he chose to become an American citizen in order to avoid South Korea’s mandatory military service system. In an instant, his reputation in South Korea was ruined, and he became the target of accusations from all parties. In the end, he had to leave all his careers and go away.

  That's why Stevenson and the others reacted like this when their identities were exposed. They even did not hesitate to offend Kim Sun-hyup to settle the matter of Park Do-woo in order to seal Zhong Shi's mouth.

  Originally, this incident was done by Jin Shanxie to please these so-called "investors". The middle-aged man was also slapped by Jin Shanxie angrily because of his negligence at work. This scene stunned Stevenson and others. Although they had already overestimated the paranoia of Koreans, they never expected that this scene would happen in public.

  If it is in the United States, this kind of behavior will definitely lead to mutual fights or even desperate phenomena. You must know that the psychology of Americans is that Lao Tzu is the best in the world and is full of aggression. However, another scene that happened later made them even more dumbfounded, not knowing what to do. If Zhong Shi hadn't come to persuade them, they wouldn't have known that all this was to please them.

  Zhong Shi also accepted as soon as he saw it, and after a few perfunctory words with this group of people with ulterior motives, he walked away with Pu Duyou whose face was covered in blood.

  …

   "Everyone, we have been visiting South Korea for a while, and now I can share your views!" Two days later, in Zhongshi's room, a small meeting was being held secretly.

After Zhong Shi asked, several traders looked at each other in blank dismay, and after a long time, one of them said: "According to our investigation during this period, we found that there are serious problems in the Korean financial system, which are similar to those in other Southeast Asian countries. , that is, there are serious bubbles in the real estate market and the stock market. Since the foreign investment brought about by the rapid economic growth is not completely used in the production industry, a considerable part is squeezed into the capital market, which is quite dangerous.”

"However, this bubble is being gradually dispelled. Since the Korean Composite Index hit its highest point of 799 points in June, so far, the entire Korean stock market has fallen by more than 150 points, a drop of 19%. On the one hand, it is based on the poor economic environment in Southeast Asia, and on the other hand, it may be that the South Korean government is consciously eliminating asset bubbles.”

"Only in this way, it becomes very difficult for Korean companies to raise funds from the stock market. Without this financing channel, Korean companies can only raise funds from banks and foreign investors, through loans and issuance of bonds. In any case, the cost of the two methods will not be too low."

After talking about the stock market, another researcher immediately took over and continued: "According to my analysis in the past two days and the data fed back from South Korea, there is a common phenomenon in Korean companies, that is, the debt ratio is too high. This kind of high is not the high we generally think of, but super high."

  Generally speaking, during the development process of an enterprise, borrowing is unavoidable due to cash flow, production expansion and other reasons. Relative to net assets, most companies generally have about 30%-70% of debt. A debt level of more than 50% will be considered a high debt ratio, while a debt level of more than 100% will be considered insolvent. If this kind of enterprise does not develop rapidly and has a good market and prospects, investors will avoid this kind of enterprise.

  However, the general debt ratio of Korean companies exceeds 100%, and some even reach a shocking 1000%, that is, the net assets of ten such companies can repay the debts of creditors. If this level of debt was placed elsewhere, it would have long been considered one of the high-risk companies.

"According to news from the Korean financial industry, they estimate that the average debt ratio of Korean companies is around 400%, and the top 30 companies in South Korea are even more than 500% in debt. This astonishing debt ratio is quite scary. If once If there were creditors chasing their debts, these businesses would immediately be in a cash flow collapse."

"The reason for my analysis is that South Korea began to expand rapidly after the 1980s. This expansion is based on the premise of rapid growth in exports and is based on rapid development. The result of this growth is short-term external debt as a share of GDP. According to statistics, the short-term foreign debt of the Korean business community alone accounts for more than 50% of South Korea’s GDP. Looking at the world, this kind of high dependence on foreign debt is also extremely rare.”

  Hearing these analyses, Zhong Shi nodded noncommittally, and did not express his opinion, but tilted his head, not knowing what he was thinking.

   Seeing the boss's expression, the others felt a little uneasy. After a moment of silence, the analyst continued: "In addition, there is another peculiar phenomenon. This phenomenon is not only strange, it is even quite dangerous and fatal to the Korean economy."

"After the Korean economy began to be liberalized in the 1980s, structural adjustments were made. This adjustment was concentrated in the fields of automobiles, heavy machinery manufacturing, steel refining, shipbuilding, and overseas engineering. The main measure of adjustment was that the Korean government required large enterprises to The reorganization and merger resulted in the formation of a large number of heavyweight consortiums, including the Samsung Group, Kia Group, and Daewoo Consortium that we are more familiar with.”

   "It has to be said that the rise of these consortiums has greatly strengthened the international competitiveness of Korean companies, and has also given birth to many top-ranked super companies in the world. But..."

Speaking of this, the researcher paused, looked at Zhong Shi's face, saw that he had no special expression, and then continued: "This consortium system at the cost of a high degree of monopoly seems to have strengthened competitiveness, but in turn kidnapped the South Korean government and people. That is to say, even under a market economy, these consortia’s operating conditions should not cause major problems. Even in order to avoid social unrest and high unemployment, the South Korean government still Having to help these consortiums when they are in trouble, this kind of kidnapping is really..."

   Speaking of this, the researcher lowered his head, trying to find a suitable word to explain this behavior, but no matter how hard he racked his brain, it was difficult to find the appropriate word in a short time.

  "Too big to fail"

  to fail) is it? "Just as he was thinking hard, Zhong Shi said it out.

  The researcher's eyes lit up, and he immediately nodded and said in agreement: "Yes, that's the word. Too big to fail, too big to fail." He repeated it several times and found that the word was too appropriate.

  Big but not toppled, Zhong Shi is very familiar with this situation. When the financial crisis broke out in the United States in later generations, in order to cope with the cash flow crisis of the financial giants, the US government endured criticism from all sides and resolutely injected huge amounts of funds into these financial giants to help them tide over the difficulties. This violation of the market economy has been criticized by the economic circles, but the U.S. government is very clear that if these financial giants are allowed to collapse, the entire U.S. financial market will collapse at that time, and there will be no more subordinates. The financial crisis caused by loans will evolve into an economic crisis of the whole society, even the Great Depression.

"Because of the excessive foreign debt, if South Korea does not consider debt hedging, once the Korean won depreciates, the nominal foreign debt of these large companies will rise sharply. The good news cannot make up for the increase in nominal foreign debt, and due to the general depreciation of currencies in Southeast Asia, the competitive pressure on South Korea's export industry is definitely not comparable to before."

   After saying this, the researcher shook his head helplessly. Even he himself thought that the development of Korean companies had gone astray.

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  (end of this chapter)