The Global Crisis and Korea's International Financial Policies
The global crisis that was ignited by the meltdown in the U.S. subprime mortgage market is a dramatic illustration of just how interdependent our economic and financial systems have become. The spread of the crisis from a downturn in a major real sector of the U.S. economy to the financial market most connected to it was to be expected. What caught many people, includ- ing experts, by surprise was how the crisis kept spreading to a much wider set of financial and credit markets in the United States and other industrial countries, then to a much broader set of countries around the globe—and then from the financial to the real sectors. The resulting recessions in the indus- trial countries spread the damage to many developing and emerging-market countries that had little direct financial connection with the fancy derivatives products that contributed so much to the initial spread of the crisis. In this process, Korea was in an intermediate position. It had little direct exposure to securities based on the U.S. subprime market, but its high level of financial interdependence made it the Asian country hardest hit when global financial markets seized up.