In extremis, the locals win.

The Lone Star debacle is often cited as an example of how nationalistic fervor in Korea can trump legal and fair treatment in business. Keep that in mind if you decide to venture into the swamp of a story in the New York Times about how the Korean courts have sided with Korean companies opposed to the execution of contracts designed to protect Korean firms against a strengthening Korean won (KRW), which was a real worry up until about a year ago.

This convoluted process, called Kiko (for knock-in, knock-out) goes something like this:

What it meant was that if the won rose against the dollar, or even held more or less steady, the Korean companies would get a break on foreign exchange costs. But they paid for that break by risking huge losses if the won collapsed.

In 2006 and 2007, when these contracts were being sold, the dollar was steadily falling against most Asian currencies, including the won, and that was the risk companies were worried about. In 2008 and into this year, the won collapsed, going from under 1,000 to the dollar to more than 1,500 at the peak early last month. The lawsuits began to fly, adding up to more than 330 at last count.
The Korean courts have so far blocked enforcement of nine contracts, pending trials. In the major decision earlier this year, the Seoul Central District Court justified its decision on the kind of logic that would apply in the United States to a lawsuit involving an unsophisticated individual investor and a fast-taking broker.

Yikes. It's even more confusing if you actually read the whole article. On the one hand, this is one of those things where it looks like local Korean entities (companies and now the courts) are changing the rules when it suits them. On the other hand, it looks like the banks have put together some highly complex shell game that few truly understand, the kind of thing that underlies the entire financial collapse we're experiencing.