A bailout plan for South Korea
A South Korean flag waves in the breeze
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Renita Jablonski: Glad you're tuned in this morning as we continue with Fallout -- and what seems to be everywhere a bailout. That B word is no longer immediately associated with the U.S. Today, the biggest move yet by an Asian government in dealing with the global financial crisis: a multibillion-dollar rescue in South Korea. Turns out its banks were flying high on the jet fuel known as U.S credit. We all know what happened next. More now from Marketplace's Scott Tong in Shanghai.
Scott Tong: Korea's government put up a $130 billion to support its troubled banking system. The message to the markets was, "Hey, we're good for it." And Korean stocks gained 2 percent today and its currency picked up 1 percent.
Here's the underlying problem: before the credit crunch, Korean banks figured the best way to borrow was in U.S. dollars -- interest was low, and so was the value of the dollar.
Bill Belchere: The problem is, as all good plans tend to go awry at some point.
That's Bill Belchere of Macquarie Securities. When financial markets dried up, so did Korea Inc's credit line.
Belchere: When you go into a global credit crunch or there's risk aversion, you don't want to be in a position where you're borrowing money offshore to fund your growth.
Seoul's new loan guarantees are meant to keep the credit flowing. It's a small step compared to what American and European regulators have done, but Korean banks stand healthier -- as far as we know.
In Shanghai, I'm Scott Tong for Marketplace.