Left Flank

Get out the toolkit and manual, stop looking for a new ideology, and let's tune-up capitalism!

Powered by ScribeFire.

Powered by ScribeFire.

Now that the ROK and US have signed a currency swap agreement, will anyone acknowledge the respect?

The agreement allows the Bank of Korea to deposit money in won in the Fed for a certain period of time and take out U.S. dollars. This will help Korea secure and maintain foreign currency reserves and help stabilize the won.

For what it's worth, American investment banks insist that the South Korean won is undervalued. South Korean small-and medium-sized business owners agree, taking umbrage at the KIKO agreements they signed last year.

Some small- and medium-sized companies are teetering on the verge of collapse as the won continues to weaken because of their involvement in knock-in, knock-out (KIKO) currency-hedging contracts. According to the Korea Federation of Small and Medium Businesses, things will get worse for most small- and medium-sized companies at home if the won falls to the level of 1,500 versus the dollar. Kim Tae-hwan, head of KFSMB's trade division, said, «Companies with KIKO contracts will incur combined losses of 330 billion won (US$225 million) every time the currency falls by 100 won, so most of them will be facing bankruptcy if the won falls to the level of 1,500 versus the dollar. Other small- and medium-sized companies are grappling with the double whammy of rising raw materials prices and calls from clients to cut the price of their inventory.»

The owner of a company located in the city of Ansan, Gyeonggi Province, who is only identified by the surname Kim, is having sleepless nights these days because of damage from the KIKO contract he signed last year. He is more concerned about next year, however, when he will be required to pay double the amount of the options contract to his bank, or $300,000 a month, if the won falls further beyond the contracted range. «I'm hoping the government will initiate measures for small- and medium-sized companies, but don't expect them to affect me much because the government budget is relatively small,» Kim said. «Then, I am more concerned about whether I will be able to manage my company next year.»

The won's sharp decline is making things especially difficult for small- and medium-sized companies. A company in the city of Changwon, South Gyeongsang Province, is grappling with calls from clients to cut the prices of its inventory. One company official said, «As the won falls, buyers in the U.S. and Japan are asking us to cut our prices. We are delaying making any decisions, telling them we want to see what will happen in three months.»

According to a survey of 147 small- and medium-sized exporters conducted by the KFSMB, the won should be valued at 999.72 won versus the dollar and 992.9 won versus 100 Japanese yen. The won's current value is more than 50 percent less than what they say is appropriate.

But wait, screams Drambuie Man, about all the profits made on previous KIKO agreements? Still I'm not going to praise Ben Bernanke for pouring a little water on the fire by allowing currency swaps to token middle-tier economies, like Brazil, Mexico, Singapore, and ROK. Seoul would also most likely qualify for IMF help, too, although South Koreans would probably return to the streets in outrage rather than actually take a loan again.

Dani Rodrik praises and then asks, «Will the amounts involved be enough? And what will happen to countries that are not named in the Fed program or will not qualify for the IMF's new facility?» Yves Smith decries «...the lack of detail as to the size of this program.» Daniel Altman is just plain against both the swaps and IMF help.

Those countries and others may see their currencies plunge steeply against the dollar, which will make it harder for them to pay any dollar-denominated debts. But currency devaluation is not just an effect of the crisis; it is a policy that many of these countries will pursue to keep their exports competitive. Deep devaluations against the dollar will prolong the problem of global trade imbalances, possibly extending the current economic downturn in the United States and the rest of the world. By offering aid, the Fed and the fund are making devaluation more attractive. Their action may even increase the probability of defaults by developing countries, if those governments devalue too much. So is it really in the Fed and the fund's best interests?

Such Fed triage is risky when there really is no reform plan for the global financial system. Seoul has to stimulate domestic demand instead of banking on the US and EU to buy it out of its problems. At some point, too, correcting the cozy relationships between banks and holding companies would be a pleasant surprise, since the current regime will most likely stymie any future calls for international reform.

Powered by ScribeFire.

Steven R. Weisman offers one of the more thoughtful and understandable essays on the global financial crisis I've read recently.

As the United States struggles to get past the turmoil, the challenge will be to understand its most basic causes. Did the trouble start with the Reagan agenda of deregulation? The Bush era's passive Securities and Exchange Commission and Alan Greenspan's Federal Reserve, with their loose rules governing off-the-books investments and the ratio of capital to lending by financial institutions? The flood of capital into the United States from China and the Persian Gulf? The Federal Reserve's easy money and the failure to regulate complex new derivatives? Or was it the liberal political pressure on Congress and the administration to keep interest rates low and expand homeownership recklessly through Fannie Mae and Freddie Mac? The truth probably includes some role for all these explanations. But the truth has also been radically unclear because of the difficulty in understanding the machinations and statements of the financial wizards handling our money.

Throughout its recent heyday, Wall Street sounded so smart. They developed computer models and complicated packages of assets that seemed to make the risky debt piled on homeowners and consumers look like safe debt. The sheer complexity of these assets masked the weakness in the system. The jargon employed to describe off-the-books «structured investment vehicles,» «collateralized debt obligations,» and computerized financial models--not to mention the exotic derivatives like «credit default swaps»--was a barrier to understanding how they worked. As Representative Barney Frank says, it has not been easy for even the most sophisticated investment banker to explain the workings of credit default, currency, or interest-rate swaps. Swaps--essentially contracts between two or more parties aimed at hedging against the loss on an underlying asset--are the instruments that Warren Buffett famously once described as «financial weapons of mass destruction.» The danger is aggravated by the difficulty in measuring what threat they posed for the institutions--commercial banks, investment banks, mutual funds, pensions, hedge funds, insurance companies--possessing them. There are now more than $500 trillion of such swaps and options notionally coursing through the global financial system, and, while we know that doesn't translate into $500 trillion in risk, no one is sure in the current environment what the actual risk is. Not since the height of the cold war has the fate of the world rested so profoundly in the hands of a priesthood of experts with a monopoly of understanding obscure concepts, if they understand them at all. The expertise of the cold warriors was in throw weights, MIRVS, and the concept of «mutual assured destruction,» which was supposed to make us secure. It is not a terribly comforting analogy.

(...)

Economic crises are never so easy to decipher when you are still in the midst of them. Even afterward, it can be difficult. We're still debating the causes of the Great Depression and which parts of the New Deal worked. The first priority for long-term reform must be to make the entire global financial system more transparent, comprehensible, and accountable without imposing too many new restrictions. We need stricter oversight by the Treasury and the Federal Reserve, both of which have been lax for years, and more public understanding of what that oversight is and is not doing. A nation or collection of nations that does not nurture a healthy regulatory system runs the risk that the people in charge lack a fundamental understanding of the system's weaknesses and have little incentive to look for clues to possible failures when times are good. While the best system might not have been enough to forestall catastrophe, it might have prevented us entering this crisis feeling so helpless.

Powered by ScribeFire.

Sherman Alexie's punchline - that Native Americans always consider the greater good of the whole population - was cheesy. But, the entire dynamics of the interview were quite entertaining. Finally, there's a guest who can stand up to Stephen Colbert. Still, nothing was said about Alexie's book, The Absolutely True Diary of a Part-Time Indian. Or, about Alexie's essays and other works.

Nasdijj, the one-name author of The Blood Runs like a River Through My Dreams, claimed to be the son of a Navajo mother and a white father. His memoir features a child named Tommy Nothing Fancy who suffers from and dies of a seizure disorder. Quite the coincidence, don't you think?

Of course, after reading Nasdijj's essay and book, I suspected that he was a literary thief and a liar. As a Native American writer and multiculturalist, I worried that Nasdijj was a talented and angry white man who was writing as a Native American in order to mock multicultural literature. I imagined that he would eventually reveal himself as a hoaxer and shout, «You see, people, there is nothing real or authentic about multicultural literature. Anybody can write it.»

Angry, competitive, saddened, self-righteous and more than a little jealous that this guy was stealing some of my autobiographical thunder, I approached Nasdijj's publishers and told them his book not only was borderline plagiarism but also failed to mention specific tribal members, clans, ceremonies and locations, all of which are vital to the concept of Indian identity. They took me seriously, but they didn't believe me.

OK, I guess the short gig worked!

Powered by ScribeFire.

The Daily Show's Wyatt Cenac almost gets my disappointment. I would add: one month is enough for an election!

Powered by ScribeFire.