Financial Anomie
Relaxed Regulations, Stricter Supervision Seem to Be Answer
For Korea, the real brunt of the ongoing financial turmoil may not be investment losses but its dream of becoming a global financial powerhouse.
Some government officials, who have long aspired to turn Korea into a regional financial hub by benchmarking the U.S. industry, especially the then globally competitive investment banks, seem to be at a loss whether to continue to pursue the goal and, if so, how.
President Lee Myung-bak appeared unperturbed by the global financial trouble Saturday when he called for accelerating financial deregulation as part of advancing the nation's financial sector. His political opponents wasted no time criticizing him, saying Seoul is running squarely counter to global trends of re-regulation. Pro-government economists, however, countered that the problem with the U.S. financial industry was not the lack of regulations but that of proper oversight to curb unbridled greed of market players.
Few can say for sure which side is right, for this is no area in which laymen can intervene. One could only hope the President, though a financial amateur himself, took the advice of experts into full account when he decided to push ahead with the policy to become a financially advanced country at a time when most other countries are holding their breath to sit and watch how the situation develops.
The area of modern financing is so complicated and unpredictable as to turn former Federal Reserve Chairman Alan Greenspan from maestro to main culprit behind the ongoing turmoil. Suffice it to say at this stage the government's policymakers should consider similarities and dissimilarities between Korean and U.S. financial systems, including their wide gap in industrial development when charting out courses for future policy direction.
Presuming fewer regulations and stricter supervision are the right answer, however, the domestic situation appears to be the opposite ― too much regulation and too little oversight.
The government should rectify at least one thing in this regard; the revolving-door appointment of former regulating officials to serve as directors or auditors ― actually lobbyists ― of financial companies they used to supervise right before such moves. More than nine out of every 10 leaving various financial supervisory agencies move to private firms, sometimes through ``career laundering" to circumvent the rule prohibiting it. Unless this corrupt chain of ``co-prosperity" of former and incumbent financial officials ends, the industry has little hope of development.
A more fundamental question is whether Korea should ― and could ― become a global financial power, in view of the nation's development stage as well as its financial market size. Many economists point out that seeking a financial powerhouse without solid basis of corresponding manufacturing industry is like building a house of cards.
Even if the United States emerges from the ongoing crisis with the injection of an astronomical sum of public funds, Washington will never be free from the resultant fiscal deficit and the next U.S. president will start his job sitting on unprecedented debts.
On the other hand, Japan and Germany, which have focused on the manufacturing industry rather than financial money game and saved more rather than spending beyond their means, remain relatively calm amid global turmoil. Korea needs to give deep thought on which model it should follow. As President Lee said, ``Crisis can also become opportunity." But this can only happen to those well prepared and with solid basis.