By Oh Young-jin
Assistant Managing Editor
John Galbraith should have lived to see the ongoing Wall Street meltdown. In his book ``The Great Crash, 1929,'' he stoically observed, ``nothing is being lost but money.'' Perhaps, the great economist could have said that because he wrote it 25 years after the fact. But it was not because of this observation that I miss him but because of the equally phlegmatic notice he made of human idiocy in times of panic and blind optimism when times were good.
The costs of blind optimism are being laid bare with no exact estimates possible at the moment. Brokers, property holders and bankers have enjoyed a King's life, peddling unlimited credit and impossible dreams of owning homes for everybody.
More importantly, however, it is about human idiocy, that still needs the eye of Galbraith to see and point to Treasury Secretary Henry Paulson as it happens.
First, it was Paulson that engineered the shotgun marriage of J.P. Morgan and Bear Stearns. At that time, Bear, the smallest of five Wall Street investment banks, was in trouble for overexposure to sub-prime mortgages and Paulson cobbled together a package for J.P. Morgan to take it over with loss-covering guarantees. I would ask Galbraith whether it was a good move, considering Lehman Brothers was bankrupt; Merrill Lynch was absorbed into the Bank of America; and Sachs as well as Morgan Stanley are likely to exist in their current shape and color.
Second, American International Group, the omnipresent multinational insurance firm was put under the government's receivership. Paulson believed that it was not just too big but too interconnected to fail without risking the whole system altogether.
Third, Paulson is trying to patch up a staggering $700 billion rescue package for the credit-starved financial sector at the unmistakable risk of inflation for the whole world. After the size of the package was known, oil prices jumped 25 percent in just a day.
Now, the U.S., the bedrock of capitalism, is socializing everything within its reach, but it doesn't take Galbraith to know what dangers this means for everybody else. It is time to remember why socialism died.
If shareholders of Lone Star fund feel like suing anybody after another botched attempt to sell their stake in the Korea Exchange Bank, the fund's chairman John Graykan should be top of their list.
Graykan's cardinal sin is that he can't just close the deal.
Bureaucracy and red tape are a convenient excuse but Korea is not an exception but part of the rule. Nationalistic backlash is also common when somebody, especially a foreign entity with the reputation of a vulture, tries to take out a hefty cut ― in Lone Star's case, five times more than its investment.
A level playing ground is an illusion ― something Graykan failed to take advantage of.
Above all, Graykan is a disaster in both PR as well as business terms.
For one of his first public appearances he came unshaven, making him look like a con man, and his image worsened by his mission of profiteering (I understand he had a long flight but still wonder if he didn't have anybody who consulted him about appearances).
Second, he offered $100 million in charitable donations as a token of appreciation. His offer was made when Lee Kun-hee, then chairman of Samsung Group and Chung Mong-koo, CEO of Hyundai-Kia Automotive Group pledged a significant donation. Chung and Lee are matching their commitment with action but Graykan so far has not.
In contrast, Carl Icahn, corporate raider who must have broken a lot of hearts in his career, went away with a handsome profit during his venture into Korea for the KT&G, tobacco company that has a sprawling sphere of non-core businesses.
Ichan, for his experience and reputation, is in a different league from Graykan and his handling of HSBC's bid, and a bid by Kookmin Bank for the KEB shows how wide the gulf between the two is.
It is ``uniform mentality'' at work. Min Euoo-sung, CEO of the state-owned Korea Development Bank is under siege for trying to be different, the ultimate sin in Korea. Min, former chief of the bankrupt Lehman Brothers, made a bold move to take over Wall Street's fourth largest investment bank after it showed signs of trouble.
He was forced to give it up midway because of a gap with Lehman over the price. But more importantly, he raised the wrath of his mentor Jun Kwan-woo, chairman of the powerful Financial Supervisory Commission.
At one point, Min tried to cobble together a consortium with other Korean banks but all refused (I wonder who pulled the strings).
By contrast, Bob Diamond, chief of Barclays Capital, is the winner so far as he took over Lehman's New York operations, its most valued asset for a song. Real estate portions excluded, the price he has to pay is too meager to mention.
Min apparently wanted to seek part of Lehman's franchises, if he didn't face calls to step down for his possession of Lehman stocks that he had declared before taking the job. Japan's Nomura ended up winning Lehman's Asian operations.
A lesson from the comparisons of Min and Diamond is this ― Korean financial authorities, bankers and stock brokers don't have the right kind of mettle and their goal of making the country into a financial hub is destined to remain a slogan.
Just because all important investment banks are now gone, it doesn't mean that their skills will not be needed. Koreans don't have those skills and they will not have them for a long time. At least, Min tried.
How badly does Samsung Electronics want SanDisk? Very badly, considering a hefty sum it offered for a total buyout ― $5.85 billion or $28 per share, and all in cash.
How badly did SanDisk want Samsung's buyout? Depends. But its shareholders are unhappy with a significant loss in their share prices for the past two years and may have to see further drops in the current down market if Samsung withdraws its bid.
Their union may be a marriage of convenience that can satisfy both parties. Samsung, No. 1 NAND flash memory chip maker, would be a winner for saving over $300 million in annual royalties it pays to SanDisk the designer and secure a steady demand from the California-based firm, a voracious consumer of chips.
As would be the case with many marriages, however, Samsung's courtship has hit a snag as SanDisk rejected its offer, calling it ``opportunistic'' coming at a time when the industry is caught in a downward cycle.
Samsung refuses to name a new price, saying that its offer is final and telling SanDisk to take it or else. The offer will be good until the end of the year, it says.
Samsung is making efforts to avoid impressions of strong-arming SanDisk because of a potential backlash from the U.S. market where it not only sells chips but such consumer goods as mobile phones and televisions. This means that Samsung is not likely to make a tender offer.
If Samsung fails to get SanDisk, it would, however, run the risk of denting its reputation as an industry leader. After all, it has not succeeded in any major M&A overseas, with its organic growth reaching its limit. Besides, this endeavor is looked at as the first key test for the new leader in its chip division after Dr. Chip Hwang Chang-kyu left.