The Wall Street Panic and the Korean Economy

There may have been no one who anticipated the bankruptcy of Lehman Brothers, once one of the top five global investment banks. The shocking news reverberated through the Korean financial markets like a thunderclap. Subsequently, not a few Koreans suffered from the “September crisis,” when foreign investors were rumored to be on the verge of withdrawing capital from the local bond market en masse, especially in the second week of September 2008. Fear eventually led to a sense of an impending crisis, which, in turn, threw the financial market into a panic. Since then, the dollar has surged and stock prices have plummeted. In spite of the U.S. government’s $700 billion bailout plan, international and domestic financial markets are in the midst of a deep fog. Although more than a decade has passed since the 1997 economic crisis in Korea, the acute pain of that crisis and the memories of hardship appear to have resurfaced. This paper examines the causes and lessons of the Wall Street panic, then discusses the problems at hand for the Korean economy.