the east asians of last resort

the FT is reporting that lehman brothers almost made a huge set of deals with various south korean firms, and may still do so in the face of its now-infamous losses.

what's especially interesting about this story is the fact that a strategic partnership with the korean development bank and first korean bank and so on was probably seen as something of a desperation maneuver, given what lehman execs knew at the time of negotiations. why korea? why not, say, china? or any number of other locations?

my relatively uninformed theory is that korean financial institutions are in an unfortunate position—one made clearer by this story.

there's a korean saying—"korea is a shrimp in an ocean of whales." the whales, of course, are the PRC, japan, and the US (and to a lesser extent, taiwan). korea may be the 11th or 12th (depending on your measurement) biggest economy in the world, but it's in a part of the world where all you care about is the runner in front of you—not the ones behind you.

so basically, my guess would be that the banks were just as desperate as lehman was. right now, very few major US institutions are investing in korea, and it's losing its comparative advantages in virtually all sectors. it still has a leg up in telecommunications, but other than that, china and japan have made much of its economy redundant since the late 1980s. as the workforce gets older and the totally under-reported korean educational exodus of the past decade continues, korean banks are wising up and realizing that they need all the help they can get.

as an amateur korean nationalist, i hope that korea doesn't remain in this position for long. things are grim right now, given that lee myung-bak is under huge pressure to go back on his commitments for the US-korea FTA—a setback that could be devastating to the korean economy in the long-run.

anyway, the point is this—i think the lehman brothers desperation move, when taken alongside the recent street protests, is indicative of where korea stands, these days, in the power-politics of international investment. if it's going to remain significant, significant structural changes need to happen. but this blog isn't about policy recommendations, so i don't really have any.

i just hope people see this story about the lehman brothers deal as part of a story about korea, and not just lehman brothers.