Capital withdrawal.

What that meant was clear. They had judged that it was no longer feasible to invest in Korea.

“But, if you withdraw the funds now....”

Mumbling, he trailed off at the end of his sentence. He couldn’t bring himself to speak plainly due to pride.

If the short-term debt was recalled now, everything would collapse.

“Well..., even if you see it that way, there’s nothing I can do. It’s a direct order from headquarters.”

Of course, that so-called ‘headquarters’ was actually dictated by Yoo Seon-jun and his cousin’s opinions—but none of the people in this room knew that.

“We were already struggling after you recalled the debt from the Japanese bubble investment last time... Isn’t this a bit too much?”

Yoo Seon-jun tilted his head as if he had no idea what was going on.

“I’m not sure about that, but... did something like that happen?”

“Back then, you said you had connections with a Japanese securities firm...!”

– Tap.

He clapped his knee as if he’d just remembered and nodded.

“Ah, that. Yes, that did happen. It was an unfortunate accident. But... haven’t you paid that off yet? It wasn’t even that big of a debt.”

“...”

He had a lot on his mind... but no matter what words came to him, he couldn’t say them in front of the Daehwa family’s eldest grandson.

“I even said I was sorry and gave you generous terms on the maturity back then, didn’t I? Any CEO I know would’ve had plenty of time to repay that. For you to bring that up now feels a bit off. And I’m sure I gave you the choice back then, didn’t I? All I did was arrange the offer that came to me.”

Yoo Seon-jun gave a gentle smile as ◆ Nоvеlіgһt ◆ (Only on Nоvеlіgһt) he looked around the room.

As if asking, ‘Anything else?’

Of course, there was nothing they could say. They simply didn’t have the money.

***

They didn’t have the money to repay. That was the short summary of what had happened to Korea’s investment companies.

More accurately, it was a “shortage of dollar liquidity.”

“Brutal. Seriously.”

Yoo Seon-jun grumbled.

“Aw, come on, oppa. From what I saw, you totally nailed it earlier. You were super annoying and really cool!”

Yep, that’s the gambler Yoo Seon-jun I know.

“...You’re the one who told me to do it. And where were you watching from?”

“Hmm... security camera?”

She winked with one eye and smiled.

“You do that kind of thing? No wonder our kids’ cameras caught you recording a bunch last time....”

At his menacing expression, I waved my hands frantically and shook my head.

“No, I mean... I respect privacy too, you know. There’s nothing like that in your bedroom. The cameras are only set up in the investment firm. And you know half the people over there are from the shadows, right?”

There were times I wanted to peek at my adorable little cousins, but I resisted the urge. Chubby baby cheeks just aren’t the same unless seen in person.

Besides, well... there’s the privacy issue I mentioned. What kind of lunatic would voyeur into their cousin’s marital life? Even for me, that crosses a line. Incest and adultery? Too high of a hurdle.

“Ahem, anyway, you did well. The opening move was great—now we just wait.”

Let’s take a closer look at what it means to lack dollar liquidity.

First, a shortage of dollars means that demand for the dollar has surged. A lingering effect of the dotcom bubble sucking up all the dollars, you could say.

Of course, there are many other causes too: America’s high-interest-rate policy, Japan’s weak yen phenomenon, etc.... But for investment firms, the most troublesome part is that they borrowed in dollars in the first place.

That’s a critically important fact. If you borrowed in dollars, you have to repay in dollars. And when dollar demand suddenly spikes, you naturally have to cough up more won.

That wrecks the exchange rate—and unlike before, the government can’t step in and cover the debt. Because even the government is now short on dollars.

The Bank of Korea can print and pay in won, but the debt still has to be repaid in dollars. Under a fixed exchange rate regime, that’s a massive issue.

Exchange rates don’t stay “fixed” just because you say so. The fixed-rate system requires the government to intervene constantly in the market, selling dollars to prop up the exchange rate.

– “Don’t let the dollar climb so high.”

So the government forcibly sold foreign currency to maintain the won’s value—just like Thailand had done.

And just like Thailand, the result was predictable: Korea ran out of foreign reserves. That’s the true meaning of “dollar shortage.”

Second, separate from dollars, even in terms of the won, domestic liquidity was starting to dry up. This had always been a chronic issue in Korean corporations... and East Asia as a whole wasn’t that different.

The particular issue that just hit investment firms was what’s called an asset-liability mismatch, maturity mismatch, or maturity gap.

If you borrow money short-term but lend it long-term, you’re obviously screwed when that short-term debt comes due. It’s a well-known phenomenon, and honestly, investment firms were just negligent.

And if the problem stayed confined to investment firms, it’d be manageable. But capitalism’s fundamental mechanism of credit creation works fine in boom times—but in downturns, it becomes a disaster.

If liquidity keeps flowing and debt is paid off sequentially, it might be okay... but if that highly liquid cash gets stuck somewhere and stops moving, you get a chain of defaults.

It’s been said often: most Korean companies during the IMF crisis had assets. What they lacked was liquid cash.

If the money you owe is due tomorrow, and you’re told you’ll be paid in a month, what good is that? You have no choice but to declare bankruptcy.

[Three Investment Firms File for Bankruptcy... Flood of Investment Firms Backfires]

[Foreign Reserves Estimated at $30 Billion—Soaring Dollar Demand Wreaks Havoc on Currency Supply]

[Former Blue House Chief of Economic Affairs Kim Hae-ik: “Korea Is in Crisis.” Calls for corporate debt restructuring and healthier reforms.]

– Rustle.

This issue was starting to appear even in the economic sections of newspapers. The government hated the phrase “economic crisis” so much it tried to suppress the narrative, but experts with a foot in the economy were already sounding the alarm.

“...It’s not getting mentioned much, though.”

Yet my dear cousin had the gall to say that. Hah, low coverage is a good thing—what is he even talking about?

“Why? This is more than enough.”

“Still, a neighboring country just defaulted. Shouldn’t things be more chaotic?”

From Yoo Seon-jun’s perspective, sure—but right now, it’s July 1996.

And in terms of an economic crisis, a year is an incredibly long time. Even the Hanbo scandal—later seen as the trigger of the crisis—hadn’t happened yet.

“I’d suggest thinking more realistically. Grandpa always said the same—reality and theory are different. Isn’t that why you like gambling too, oppa?”

“Hmm... true. But I still can’t believe our country was ever this unstable. Didn’t we just join the ranks of advanced nations?”

“You know how much we’re spending to look like an advanced nation? We’re already short on dollars, but the government is spending even more.”

The president’s lack of economic knowledge led to absurd policies. Like ordering the Bank of Korea—which still basically functions as a government branch—to deposit dollars into low-liquidity commercial banks.

– “Since when did the Bank of Korea even have those dollars?”

If a government or company asked where the dollars in Korea’s foreign reserves had gone, the reply would probably be something like: “You asked for them, and we gave them to you.”

And then, should we still call that “foreign reserves”? I mean, if I don’t even have it on me, can I really say I possess it?

Yoo Seon-jun, stroking his chin, suddenly turned to me as if something came to mind.

“Come to think of it... weren’t you kind of close with that former chief of economic affairs? What’s he doing these days?”

“Oh, Professor Kim Hae-ik? Got kicked out after trying to advise the president.”

“Ah...”

– Rustle.

I looked at my reflection in the mirror and smoothed out my long hair.

‘Yup, still pretty today.’

Though, maybe the back could be a bit shorter. Blow-drying takes forever. I barely have time as it is.

– Ahem.

I cleared my throat and continued.

“In my opinion, it was inevitable. They’re holding trials these days trying to purge the dictatorship. They probably didn’t want any more political instability. His risk-averse nature didn’t help either.”

The former chief of economic affairs had always prioritized stability over growth, and this time too, he pinpointed the problem in the Korean economy quite accurately.

He said we needed to stockpile liquid assets, stop burning through dollars, enforce proper corporate supervision over lax institutions, cooperate with Japan to weather the crisis... and more.

Actually, almost every properly trained economist said the same things... but they were ignored.

Why? Because they’d been saying the same thing forever, and nothing bad had happened—yet.

“That’s why shorting is hard. You see something obviously wrong, but unless something huge breaks, the system keeps limping along.”

Also—something Koreans often don’t realize—Korea is actually a very wealthy country. It takes a long time to collapse, and when it finally does, the impact is massive.

“You’re saying... this isn’t a big deal?”

Yoo Seon-jun showed me a newspaper lying to the side.

[Korea’s Current Account Deficit Widens in Q2... $6 Billion Deficit This Quarter]

[Current Account Deficit Estimated at $30 Billion by Year-End... Severe Crisis Facing Korean Economy]

[Ripple Effects of Southeast Asian Economic Crisis Spark Growing Anxiety. Government Dismisses Concerns: “Look at Hong Kong. If your weight class is high enough, external shocks don’t shake you.”]

Hmm.

I looked at Yoo Seon-jun like he was talking nonsense.

“It’s serious. That’s why it’ll collapse, right? Great.”