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Asia's Financial Crisis

© Jason Gottlieb

One block away from the Tokyo Stock Exchange, the streets at noon are normally bustling with life and activity as the businessmen flock to their favorite lunch haunts, talking about the scores of the day. But today, Nov. 25, the streets are quiet, deathly still. The legions of men in dark blue suits (with company pins on their lapels) stand huddled around the doors of the Exchange, nervously smoking, pacing, staring into the gray misty skies, and silently thinking in unison: can this really be the beginning of the end?

True, the TSE has seen better days anyway; it has fallen nearly 60 percent since its record high in the boom years. But today, there is a different feeling, a portentous gloom that has settled, as the unthinkable has happened: Yamaichi Securities, for a century a bedrock of the financial community, has shut its doors. Facing up to 6.7 trillion yen ($53 billion) in debts, the company that funded Japanese companies and driven the economy through war and peace, boom and bust, has ceased operations, leaving — at best — uncertainty in its wake.

In response, the TSE's Nikkei 225 index (similar to the Dow Jones Industrial Average) fell more than five percent in the first hour of trading today, and stayed there until the close. For the moment, the response from around the world has been tentative; Wall Street immediately fell 1.4 percent but recovered that day to post a modest gain. Most European markets were also mixed. But perhaps the most telling signs were the bearish reactions in the already battered Asian markets. Hong Kong's Hang Seng index fell 1.8 percent In South Korea, and the stock index was down 7.2 percent, falling to a 10-year low. Bond markets tumbled, interest rates rose 1.55 percent, and the won weakened — again.

Asian currencies have all suffered mightily over the last year or so. The Malaysian ringgit is 72 percent of what it was against the dollar a year ago. The Philippine peso 74 percent, the Thai baht 62 percent, the South Korean won 75 percent. This last figure is the most troubling. Although the other nations are not exactly world economic powers, South Korea is the world's 11th largest economy, and it is now in serious financial trouble. Kia Motors, the centerpiece of one of Korea's major conglomerate cooperative groupings (called "chaebol"), has also recently failed, and the government pushed the once mighty company into receivership. Eight other chaebol collapsed this year alone. The International Monetary Fund has announced a bailout package which actually scared investors more. As Dongwon Securities broker Choo Hee-yup said, "People think the IMF package will lead to rises in interest rates, cuts in fiscal spending, more corporate collapses and lower economic growth — the worst of all things investors can imagine."