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Off With the Bankers
From: David Farber <dave () farber net>
Date: Fri, 20 Mar 2009 12:11:31 -0400
Begin forwarded message:
From: dewayne () warpspeed com (Dewayne Hendricks)
Date: March 20, 2009 9:47:11 AM EDT
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] Off With the Bankers
March 20, 2009
Off With the Bankers
By SIMON JOHNSON and JAMES KWAK
A.I.G. can hardly claim that its generous bonuses attract the best and
the brightest. So instead, it defends the payments by arguing they’re
needed to retain employees who are crucial for winding down
transactions that are “difficult to understand and manage.” In other
words, only the people who stuck the knife into the American
International Group can neatly extract it for a decent burial.
There is no reason to believe this.
Similar arguments made during the 1997 Asian financial crisis, when
currencies and stock markets collapsed in much of Southeast Asia,
turned out to be a smokescreen to protect the executives who were
partly responsible for the mess. Recovery from that crisis required
Indonesia, South Korea and Thailand to close or consolidate banks. In
all three countries, bankers protested, claiming that their
connections with borrowers were critical to recovery.
In South Korea, cozy relationships between banks and the large
conglomerates called chaebols were a major reason for the crisis. But
after the crisis hit, Korean bankers and companies insisted that the
complexity of chaebols like Samsung and LG — with their many separate
but interwoven businesses — meant that outsiders would not be able to
distinguish good loans from bad.
In Thailand, some argued that the preponderance of family-owned
businesses — and the lack of clarity about precisely which family
members were really in charge — meant that only bankers already
working in big institutions like Bangkok Bank and Siam Commercial Bank
could determine which borrowers were creditworthy.
The leaders of Thailand and South Korea did not listen to such
arguments, and thank goodness. Some of the leading Thai banks were
taken over by the government. After the crisis, a civil servant in
charge of one such bank noted that its bad loans were much bigger than
had been indicated before the takeover, largely because of an internal
coverup. Only when outsiders took over did the public discover the
full scope of the losses.
The South Korean government also demanded that the banks and the
chaebols make a clean break. This generated a great deal of political
noise — particularly when foreign managers were brought in, as when
the Carlyle Group bought a stake in KorAm Bank in 2000 and Lone Star
Funds purchased the Korea Exchange Bank in 2003.
But these reforms made all the difference. Banks became healthy and
resumed lending within a few years after the crisis broke. The
chaebols that survived are stronger than they were before the crisis.
They are now withstanding the severe pressure of the global recession
because they were forced to become better regulated, and more separate
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- Off With the Bankers David Farber (Mar 20)