A South Korea court found the Lone Star executive guilty last month. It is said to be a sign that South Korea's attitude to foreign capital has changed. Lone Star, a U.S. private equity firm, bailed out a South Korean bank right after the Asian financial crisis. But when the firm tried to cash out their investment with astonishing return, the Korean public ran afoul of the American savior. I have heard that Koreans are pretty xenophobic, but putting someone who helped you in jail? It is just unbelievable. I don't know how South Korea is going to have any foreign investment in the future.
The xenophobia is actually touching a very critical finance question. Are speculators stabilizing the financial market or destabilizing it? Milton Friedman believed that speculators stabilize the market because profit-seeking players will bring the market back to the fundamentals much faster. In addition, speculators provide liquidity when most of the market participants are squeezed. I personally like this view very much, but to be fair, some researchers also find the irrational behavior of speculators may drive the market farther away from the fundamentals.
Academics aside, most of the politicians in developing countries talk about the speculators in a manner of demagogue. Speculators are bad; foreign speculators are even worse. We should protect our country, etc. For me, picking on foreigners is often a sign of a people lack of self-confidence. Only when your country can absorb the shocks of speculative attacks with grace, like U.K. did when Soros attacked Bank of England, can you proudly call her a developed one.
(Picture: Convicted Lone Star executive, Paul Yoo. Yonhap News)
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