Events related to the Crash

• Turkey's Banking Supervisory Board is taking Ulusal Bank (31st in size Sept. 2000) into its control because its debts exceeded its assets. This is not the first bank owned by Cingillioglu Group to suffer this fate; Demirbank suffered similarly in the previous instability (Aug.-Sept. 2000).

• The Bank of Japan reduced their overnight rate to 0.15% from 0.25%, and their discount rate from 0.35% to 0.25%. This seems to be a response to unexpectedly negative GDP data and political pressure (although the LDP's stated demands for 0% overnight were not satisfied).

• Turkey's largest state banks, Ziraat Bank and Halk Bank, defaulted on overnight obligations to foreign banks last night. The central bank refused to cover these, which ended up driving overnight rates to 5000%. A number of foreign bank estimates indicate that Turkey's state banks (in contrast to lower ones) formally have no equity whatsoever, and are not subject to realistic auditing procedures for political reasons.

• Berkshire Hathaway Inc. and Leucadia National Corp. are preparing to take over Finova Group Inc. Finova intends to file Ch. 11 bankruptcy proceedings shortly. The intended reorganization plan will involve $6 billion dollar in loans from Berkshire Hathaway and Leucadia, resulting in 51% of the stock being controlled by these two corporations. Part of Finova's preparations for Ch.11 is a freeze on payments of principal on the loans it owes.

• Turkey's lira has begun to stabilize after losing about 33% of its value since Turkey's central bank gave up its exchange rate controls.
• South Korea's Korea Development Bank indicated that it would not tolerate Russia's central bank to postpone about $100 million in interest payments -- unless South Korea's government guaranteed 90% [$90 million] of the deferred interest.

• Violent protests again happened when 4,000 riot police preemptively attempted to break up a rally protesting the Daewoo Motors layoffs. Besides the weapons mentioned on Feb. 22, protesters also tore apart the sidewalks to get pieces of concrete to throw.

• American International Group Inc (AIG) has announced plans to inject ¥60 billion into failed Chiyoda Mutual Life Insurance Co. Also, Yamato Mutual Life Insurance Co and Softbank Finance have announced plans to take over (failed) Taisho Life Insurance Co. [We should look askance at the cited capitalization required to resusciated Chiyoda Mutual Life Insurance Co: in Sept. 2000, it had a negative net worth of ¥595 billion.]

• Street protests of the Daewoo Motors layoffs again became violent; petrol bombs and metal pipes were used by ex-Daewoo workers, and others of the Korea Confederation of Trade Unions, against an estimated 2,000 riot police.
• Turkey's central bank was forced to float the Turkish lira today, after finding it impossible to defend the currency in the wake of the political clash between Prime Minister Bulent Ecevit and President Ahmet Necdet Sezer.

• As exports fell 5.1% year-on-year for January 2001, Japan had its first monthly trade deficit (¥95.3 billion) in four years, while imports rose 11.9% by volume and 24.3% by value, to ¥3.72 trillion.

• A rally organized by the Korea Confederation of Trade Unions (to protest the police detaining 80 people after the breakup of the strike on the 19th) turned violent, involving about 600 protesters. Sympathy walkouts at Kunsan and Changwon were not sufficient (1,500) to measurably affect production.
• 34 Daewoo Group executives and advisers were indicted for raising $20 billion in illegal foreign exchange loans, of which about $8 billion is suspected of still being in a slush fund which Daewoo Group founder and former chairman Kim Woo-choong still has access to. Kim Woo-choong is still at large.

• Turkey's Prime Minister Bulent Ecevit stormed out of a high-level meeting with President Ahmet Necdet Sezer, apparently over a disagreement about the effectiveness of the IMF-required anti-corruption drive. This disagreement was provoked by President Sezer's request to the High Board of Auditors to investigate alleged irregularities and corruption in Turkey's banking system -- which is construable as a violation of the authority of the (autonomous) High Board of Banking. There has been observable personal animosity between the two for several years now, however.
• Several thousand police broke a union protest at Daewoo Motors' Pupyong plant, using forklfts and excavators to break through a blockade of trucks and other metal objects. The union workers used petrol bombs while they were retreating. Earlier in the day, about three hundred union protesters clashed with police, attacking with pipes and improvised water cannons in a vain effort to join the protesters in the manufacturing plant proper.

• Teikoku Databank said total debts held by bankrupt firms in Jan. 2001 was to ¥969.7 billion. This was a 60.6% rise compared to Jan. 2000, and surpassed the previous record - Jan. 1999, ¥752.3 billion.

• South Korea's auction of 14.7% of Korea Telecom has failed miserably. This was attributed to a combination of factors, including auction rules that prevented gaining any kind of control over the company, and the relatively high cost of the equity.

• It is currently unclear whether Russia has the cash flow to end its arrears on Soviet-era debt to the Paris Club (which it intends to restructure). While oil prices may be high enough to allow Russia to currently do so, I do understand if Russia would prefer an arrangement viable under markedly lower oil prices.

• Talks between Daewoo Motors, and its union, collapsed as Daewoo Motors shut down its main plant at Pupyong for three weeks. Daewoo intends to formally announce layoffs on Friday (February 15, 2001).

• The Bank of Japan announced a reduction in the Official Discount Rate from 0.50% to 0.35%. Several other liquidity measures are planned, with launch dates ranging from Mar. 2001 to Jul. 2001.

• Japan's GDP for July-Sept. 2001 fell 0.6% quarter-on-quarter. This was a downward revision from an initial projection of 0.2% growth.

• South Korea's prosecutors sought five more arrest warrants for top executives of Daewoo Group -- for forging audits. This includes Kang Byung-ho, the former head of the collapsed conglomerate's trading arm. The charges are fraud and diverting foreign exchange abroad. Three others -- former presidents of Daewoo Electronics, Chun Chu-beom and Yang Jae-yol, and former Daewoo Telecom president Yoo Ki-beom -- have already been arrested on charges of fraud or embezzlement. Kim Se-kyong, a certified public accountant, was also arrested on charges of receiving $392,000 in bribes from Daewoo executives.