The Federal Reserve Board announced that it has decided to keep the federal funds rate unchanged at 5.50% following the conclusion of its FOMC meeting.
In a brief statement released after a closed-door meeting in Washington today, the Board explained that it would maintain a neutral monetary policy stance—one that neither hints at tightening nor easing—in light of the uncertainty surrounding the so-called "Y2K" issue, which could cause computer system errors as the year 2000 approaches.
As a result, the federal funds rate—previously raised three consecutive times since June—will remain at 5.50%, while the discount rate applied to loans made by the Federal Reserve to banks will stay at 5.0%.
Meanwhile, when asked by a reporter whether the Fed would consider further rate hikes to counter inflation if the Y2K problem passes without major disruptions, Chairman David Stanway replied that the committee would review economic data up to the next scheduled FOMC meeting in February before deciding whether an additional rate increase is necessary.
Following the announcement of the rate freeze, Wall Street reacted enthusiastically, with all three major New York stock indexes once again breaking record highs...
At the Eldorado Fund office in Manhattan, Seok-won sat on a sofa with his close associates Landon and Andrew, watching the CNBC news broadcast. After a moment, he picked up the remote and turned off the television.
Landon, dressed in a gray suit, looked at Seok-won—who sat at the center seat of honor—with an expression of admiration.
"As you predicted, boss, the Fed stopped raising rates and kept them steady."
Leaning back comfortably on the soft sofa, Seok-won replied casually,
"The government and the banks are spending enormous amounts of money preparing for the Y2K crisis, but if it actually happens, the damage will be far beyond anyone's imagination. The Fed can't help but be on edge."
Andrew, his neatly combed hair perfectly in place as always, naturally joined the conversation.
"You're absolutely right. In fact, I heard that the Federal Reserve has set up a special System Coordination Center at its Washington headquarters to deal with the Y2K problem. They've also established control centers at the New York and Boston Federal Reserve Banks to respond to potential computer network errors. The Treasury Department, too, will be running a 24-hour emergency response system from December 31st to January 4th."
"But… it won't really turn into the kind of disaster everyone's afraid of, will it?"
Landon's face stiffened slightly as he asked, and Andrew looked toward Seok-won with the same worried expression.
By now, most stock market transactions were carried out through computers. If Y2K errors were to occur, the consequences could be serious.
For that reason, Wall Street, no less than the banks, was on high alert—pouring large sums of money into setting up backup servers and other contingency measures to prepare for any possible disruption.
Knowing exactly how things would turn out, Seok-won picked up the teacup before him, took a calm sip of coffee, set it down again, and answered evenly.
"The systems are all interconnected and incredibly complex. If people just sat around doing nothing, it would be impossible to predict what could go wrong, and responding would be difficult. But not just us—every organization, including the government, has been preparing for over a year, investing huge amounts of money and manpower. I believe we'll greet the new millennium without any major issues."
At his reassuring words, both men let out a small sigh of relief.
"I really hope so," said Landon.
Andrew added, "Stock prices keep soaring, but you can see that everyone's still nervous about a potential Y2K meltdown."
Seok-won smiled faintly. "For all that anxiety, the markets seem pretty upbeat—breaking record highs and all, don't you think?"
When Seok-won posed the question, Andrew smacked his lips thoughtfully.
"Even though many want to convert their assets into cash out of anxiety, as you said, the market's just too hot right now. They're afraid that if they sell, the prices might skyrocket while they're on the sidelines—so they're holding on instead."
Landon shrugged and chimed in.
"Dot-com stocks keep breaking new records day after day—it's terrifying how fast they're climbing. It's not easy to sell in a market like this."
Then, as if suddenly remembering something, Landon raised his eyebrows slightly.
"Speaking of which, the stock of ModuNet, which went public last month, surpassed ninety dollars per share today."
"I saw that too," Seok-won replied. "I expected it to rise, but it's performing far better than I imagined."
Landon took a sip of tea, smiling contentedly.
"The institutional investors who sold off all their IPO shares on the first day are regretting it now, saying they sold too soon."
From across the table, Andrew lifted one corner of his mouth in amusement.
"They were thrilled with a twofold return, but now that it's up fivefold in just a month, I'd say they have every reason to be bitter."
He couldn't help but feel another wave of admiration for Seok-won's foresight—the same foresight that led him to advise Eldorado Fund not to sell off their ModuNet shares right after the IPO.
But then, Seok-won's next words made both men's eyes widen.
"At this point, it seems we've reached the peak. Sell all our ModuNet shares."
"...What?"
Landon leaned forward, his expression serious.
"The price has indeed gone up a lot, but there's still plenty of buying momentum left. Isn't it too soon to sell?"
"I agree," Andrew added. "Because of the Y2K situation, the Fed has frozen interest rates and is now loosening the liquidity it had tightened to fight inflation. The market still has strong upward momentum. We should hold a bit longer."
Even though Andrew also advised holding onto the shares, Seok-won remained firm in his decision.
"At ninety dollars per share, ModuNet's market capitalization exceeds 4.8 billion dollars. Do you honestly think ModuNet is worth that much?"
"Well…"
Faced with Seok-won's cold, rational question, neither of them could respond right away.
"It's true that the company is growing rapidly—its number of paid subscribers has jumped from about 150,000 before the IPO to over 250,000 in just a month. But even with that kind of growth, I'd say ModuNet's current valuation is far too inflated."
Andrew adjusted his gold-rimmed glasses and countered carefully,
"Even so, most dot-com companies are trading at valuations well above their fundamentals because investors are banking on their future growth potential."
Landon nodded in agreement.
"That's right. ModuNet actually generates revenue through paid subscriptions, so it's far more stable than most other dot-com firms, isn't it?"
Listening to them both, Seok-won spoke again, his tone calm but weighty.
"That would be true—if they could continue to dominate the Korean market and steadily grow their subscriber base."
"Pardon?"
"What do you mean by that…?"
Both men looked at him, puzzled.
"Do you think other companies will just sit by and watch the high-speed internet market—which has enormous growth potential—after seeing ModuNet's success?"
Realization dawned on their faces almost simultaneously.
"Several conglomerates, including Korea Telecom, are already preparing to enter the high-speed internet business."
Landon frowned slightly.
"I see. So even if ModuNet has a first-mover advantage, competition will intensify—and that changes the story completely."
Landon rested his chin on his hand and muttered with a grave expression.
It was an unavoidable outcome of doing business in the cramped Korean market—companies, from major corporations to small neighborhood stores, would all rush in the moment they saw a hint of profit. They would slash prices, undercut each other, and eventually collapse together. It was one of Korea's chronic problems.
While Koreans' sensitivity to trends and quick adoption of new things could be seen as strengths, the downsides far outweighed the benefits.
"On top of that, ModuNet used the cable TV network for its high-speed internet service, while the latecomers adopted ADSL over telephone lines—and that hit them hard."
ISDN, which operated through the cable TV network, required a direct connection to each household. It worked well for detached houses, but in apartments and villas that shared common wiring, providing high-speed internet access was much more difficult.
In contrast, ADSL could be installed anywhere that had a landline, and its transmission speed was faster than ISDN's.
"So even though ModuNet launched its service first, it couldn't really capitalize on its early start."
The final blow came when ModuNet's largest shareholder, the Korea Electric Power Corporation, got greedy and spun off a separate company called "Powercom," effectively setting up its own operation.
Hit in succession by the dot-com bubble burst, intensifying competition, and declining profitability, ModuNet's brief golden age quickly came to an end, and the company began its steep descent.
Seok-won couldn't very well explain all that, so he simply swallowed his bitterness and said,
"We've already made a fivefold profit. That's more than enough. Let's take our gains and walk away while we can."
This time, unlike before, neither of the two objected.
"Now that you put it that way, it does seem like a stock that's hard to hold for the long term," Landon said, nodding in agreement.
"If competition heats up further, it'll be difficult for the current price to hold. I agree—it's better to sell now," Andrew added.
Confirming that both men were on the same page, Seok-won turned to Landon.
"Sell off the IPO shares on the market. As for the shares we hold through Bluehole Venture Capital, look into whether there's anyone on Wall Street willing to take them in a block deal."
"You mean you plan to dispose of all of Bluehole Venture Capital's ModuNet holdings as well?"
Landon's eyes gleamed.
"You're right. Since we acquired those shares purely for investment purposes, it's best to sell them while the price is at its peak."
"Exactly."
With a sly grin, Landon rubbed his palms together, his confidence showing through.
"These days, as long as it's an internet company, investors don't even bother checking the details—they're desperate to buy in. Plus, with interest rates on hold and liquidity flooding the market, once we put those shares up for sale, buyers will come swarming in immediately."
A chuckle escaped his lips as he added, "Leave it to me. I'll make sure we get a solid premium."
"It'd be great if we can get a good price," Seok-won replied, "but don't drag it out too long. Make sure the deal is finalized no later than January."
If the Y2K issue passed without serious trouble, the Federal Reserve was expected to resume its paused rate hikes at the February FOMC meeting.
Once that happened, market liquidity would shrink rapidly, and concerns about dot-com companies' profitability would rise—causing the inflated bubble to burst with a bang. They needed to complete the sale before that happened.
Landon thought for a moment, then nodded confidently.
"It'll be a bit tight, but I'll do everything I can to close the deal by January."
"Even if we have to sacrifice a bit of the premium, make sure it's finished within the deadline," Seok-won said firmly, his tone leaving no room for doubt.
Landon found it a little strange that Seok-won was so insistent on wrapping up the deal quickly, but he assumed there must be a reason for it. Without hesitation, he nodded.
"Yes, sir. I'll see to it."
It was the end of the year—a time when most major Wall Street investors had already closed their desks and wrapped up trading for the season. Still, if they made good use of the network they had built over time, finding a buyer wouldn't be difficult.
At last, Seok-won looked satisfied. Clasping his hands over his knees, he turned to the two men.
"This year, we won't be able to take proper holidays because of the Y2K issue," he said with a calm smile. "But since we've achieved such high returns, you can expect a generous bonus."
At that, Landon and Andrew's faces instantly brightened with wide smiles.
"Hahaha. Just hearing that makes me look forward to it," Landon said.
"Everyone's been waiting anxiously for their performance bonuses to come through," Andrew added, grinning from ear to ear.
Both men were visibly delighted, their faces full of anticipation.
Not just the Eldorado Fund, but all of Wall Street was celebrating an unprecedented bonus season, as the record-breaking stock market boom had brought them incentives worth three to four times their annual salaries.