Policy Responses from Four Economies
Edited by Daigee Shaw and Bih Jane Liu
Chapter 6: The American Crisis and Korean Financial Distress
1 Un Chan Chung 6.1 INTRODUCTORY REMARKS The global economy has been experiencing wild turbulence coming from the US-born financial crisis since last fall. The media call it an ‘unprecedented’ phenomenon. In some respects, however, history is merely repeating itself. From the Dutch tulip mania of the seventeenth century to the Great Depression of 80 years ago, and now the recent propertymarket bust, we have seen that financial markets, especially in the absence of proper regulation, can collapse following the euphoria of bubbles, with devastating results not just for themselves but also for their surroundings as well. The epicenter of the current crisis happens to be the very heart of the global markets. This is therefore a stark reminder of the fragility of the neo-liberal illusion, or the belief that an unregulated market will always maximize efficiency. Of course, a free market is a good system for the efficient allocation of resources – under normal circumstances. However, like any human endeavor, markets are by no means infallible. On the surface, it was Wall Street’s aggressive marketing and greed that triggered the turmoil. However, digging deeper into the roots of the crisis, one will discover that the imbalance of production and consumption in the US, as well as the inequality of income distribution, lie at the heart of the problem. All these observations reveal that the market system may react very slowly to potentially threatening – but not so immediately apparent – structural problems that lurk beneath the water. The financial crisis that began...
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