#ROK

[dostoyevsky-official]

The political origin of financial market dislocations: How an amusement park developer’s illiquidity turned into a credit market crisis

This column uses the recent credit crunch in South Korea as a natural experiment that demonstrates how political gaffes and decision errors can cause severe financial market dislocations. It reveals how a single, politically motivated default of negligible size turned into a financial system-wide credit crisis requiring a massive government intervention to remedy. [...] The evidence suggests that the default was not related to the prevailing economic conditions, hence the causality ran from the default to the observed outcomes that followed.

On 28 September 2022, Gangwon province’s newly elected conservative governor, Kim Jin-tae, unexpectedly declared that he would not honour the local government’s guarantee on the A1-rated (the highest rating) asset-backed commercial paper (ABCP) of Gangwon Jungdo Development Corp (GJC), the developer of the Legoland Korea amusement park located in the same province. There was no indication prior to the announcement or since then that the local government was under financial pressure: the missed payment was not due to budgetary reasons. It is understood that the new governor refused to make the payment due to political/ideological considerations as Legoland Korea was associated with the previous liberal governor (Nam 2022, Park 2022). Indeed, the 205 billion won (around $144 million) that was owed by GJC was a minor item for the local government and it was not being asked to pay back the entire amount (Park 2022). GJC missed the payment on 29 September and the default was declared on its asset-backed commercial paper on 5 October.

The credit markets started pricing in the implication of the GJC default, an unthinkable event that signalled to market participants that even a government guarantee does not provide adequate protection after all. The incident led to a reassessment of credit risk in broader markets over subsequent days.

The increase in the borrowing costs did not abate even after Gangwon province vowed to pay back the entire debt on 21 October to respond to mounting criticism (the debt was fully paid on 12 December). The about-face of Gangwon province three weeks after the decision to renege on its promise bolsters the fact that the initial decision was political, not driven by financial pressure on the province.

[...] Countries find innovative ways to shoot themselves in the foot. These range from inane monetary policy in Turkey (Gürkaynak et al. 2022), to inane fiscal policy in the UK, to inane refusals to honour a small loan guarantee in Korea. The last one sounds much less consequential than the first two, but it turned out to have major systemic effects. The Korean episode was not one of multiple equilibria where the minor default acted as a focal point; it was an episode where the financial market participants learned that previously unthinkable refusals to honour loan guarantees by local governments were possible, which changed the risk perception for the entire financial system. As this case study shows, even minor political shocks can snowball into an avalanche in times of elevated uncertainty and policymakers need to be mindful of this source of risk.

[crippledgiraff]

New Valentine's Cards!

5 pack of everyone's cards - https://crippledgiraffdecals.etsy.com/listing/1852459032/2025-nerdy-valentines-cards-5-pack Big M Saxon's Oni (3 pack) - https://crippledgiraffdecals.etsy.com/listing/1866656321/nerdy-valentines-cards-youre-the-oni-one Sarah's Magical Girl (3 Pack) - https://crippledgiraffdecals.etsy.com/listing/1866652395/nerdy-valentines-cards-grimbright Qsy's Scampi (3 Pack) - https://crippledgiraffdecals.etsy.com/listing/1852452682/nerdy-valentines-cards-hold-hands-with-a Kabewski's Dovahkiin/Argonian Maid (3 pack) - https://crippledgiraffdecals.etsy.com/listing/1852457616/nerdy-valentines-cards-dovahkiin-and My Lovable Mek (3 pack) - https://crippledgiraffdecals.etsy.com/listing/1852450586/nerdy-valentines-cards-mek-love-3-pack

[sillyfudgemonkeys]

LoK Edit, Rangi is angi: I'm just your bodyguard

(Used Young!Lin as the base, and Zuko's apartment as the background. "Animated Edit version")

[ask-fun-facility]

Mandatory Spring Cleaning in the Fun Facility!

[tatunhu]

Avatar Kyoshi

And the version without the bending thingy

[warruins]

[baatarthefirst]

[lowpolygator]

big four

[achilrou]

They remind me of Light and Shadow

[lilrobinbird]

finished ver

[kw4n]

[dungeonlust]

Art by • Rok

[karlydraws]

???????????

We're getting martial law????????????

[sillyfudgemonkeys]

LoK Edit animated, Rise of Kyoshi chapter The Town: Rangi is Kyoshi's bodyguard

(Used Young!Lin as the base, and Zuko's apartment as the background. "Original still image edit")

[ask-fun-facility]

i kesp misreading the url as the-fur-affinity orz