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[Op-Ed] The Capital Market Consolidation Act and Investor Protection

[Op-Ed] The Capital Market Consolidation Act and Investor Protection

Posted February. 07, 2009 03:44,   


“At Goldman Sachs, I learned not only about market economics but also business management and human nature,” said Robert Rubin, who worked at the investment bank for 26 years and became Treasury secretary under the Clinton administration. His comment well illustrates the stature of the investment bank. Rubin, who exerted great influence over Korea and Asia when they were hit by the financial crisis 11 years ago, also said his career in politics and appointments to administrative positions were thanks to his stint at Goldman Sachs. Former Treasury Secretary Henry Paulson, who begged congressman to lift Wall Street out of the financial crisis triggered by the collapse of Lehman Brothers, was also CEO of the bank.

Leading U.S. investment banks such as Goldman Sachs, Morgan Stanley and Merrill Lynch were the envy of Korea 11 years ago. Seeing those banks rake in hefty profits by gobbling up domestic real estate and viable Korean companies suffering from temporary dollar shortages, however, left Koreans feeling distressed. Korea also needs competitive investment banks to rival Goldman Sachs. The Capital Market Consolidation Act was enacted to create such world-class investment banks in Korea and earn profits overseas.

To make the most of the changing financial environment, large corporations began buying up brokerages last year. They believe securities companies, which will be allowed to sell futures and funds with the new law, will bring in huge profits like golden geese. Their move is understandable because securities companies can turn into financial investment entities that can engage in all financial industries except for insurance and banking. They must realize, however, that American investment banks are going under one after another since the bankruptcy of Lehman Brothers.

Investors who suffered huge losses from the global financial crisis will be reluctant to invest again no matter how aggressively the Korean government and large corporations advertise the merits of the act and new financial investment companies. Given this, the government came up with measures to protect investors, including having brokerages recommend investment packages that fit an individual’s investment inclination. When securities companies began their business Wednesday under the new protection measures, however, both fund managers and clients appeared unprepared for the new environment. The future of financial investment companies will remain bleak if they fail to protect investors. The collapses of American investment banks underscore the need to create an investment bank matching Korea’s financial climate and protecting investors better than Goldman Sachs.

Editorial Writer Park Yeong-kyun (parkyk@donga.com)