The tipping point

The scandal over property investment by employees of the Korea Land & Housing Corp. (LH) has triggered public disgust and anger as it involves two sensitive issues in Korea — real estate and injustice. The impact of the inside..

Lee Ha-Kyung The author is the chief editor of the JoongAng Ilbo.

The scandal over property investment by employees of the Korea Land & Housing Corp. (LH) has triggered public disgust and anger as it involves two sensitive issues in Korea — real estate and injustice. The impact of the inside information scandal is more powerful than all the controversies over family-related corruption of former Justice Minister Cho Kuk, the Blue House’s meddling in the Ulsan mayoral election, the Industry Ministry’s distortion of an economic report on the Wolseong-1 nuclear reactor and the involvement of politicians in asset management fund frauds.

The scandal is enraging the entire population across ages and ideologies. It took place when people with or without homes were anguished by the Moon Jae-in administration’s successive sets of real estate measures that resulted in runaway housing prices and an unprecedented rent crisis. The liberal government finally came up with a supply-based solution to ease soaring apartment prices, but it turned out to have fattened the wallets of employees of the state-run housing corporation. If the government does not act tough, it could face a strong reaction — bordering on a revolt this time — from the people.

The employees at LH, responsible for compensation for the land used for housing development, were skilled extortionists. Through confidential insider information, they bought land in pieces across the New Town locations and augmented the value of the land to raise its compensation value by planting trees of rare species. Some employees even earned side money by illegally giving lectures on making money from fire-sale properties in auctions. They used all their expertise and access to information on government policies as well as loopholes in the laws for personal gain. They were the ugly and unethical side of capitalism.

People feel betrayed by the government of President Moon, who promised to cool off real estate prices no matter what. LH employees retort that there is no reason why they cannot invest in real estate. Their moral hazard has been running beyond control. The third New Town project, as well as a bold supply plan announced on Feb. 4, have gone astray. There seems little the government can do to tame real estate prices.

The government has established a joint investigation team for the LH scandal at the order of the president, but the prosecution has been excluded. The Prime Minister’s Office is in command. The probe is primarily led by the Ministry of Land, Infrastructure and Transport, which has access to real estate transaction information. Land Minister Byeon Chang-heum was the head of LH during the plotting by the employees. That means the investigation is being led by a potential defendant, which is a slap in the face to the basic concept of law and order.

Byeon defended the employees, saying they had not bought land with inside information about redevelopment plan. The outcome of the investigation is foreseeable as the investigator already considers the suspects innocent. Joo Ho-young, floor leader of the main opposition People Power Party (PPP), compared it to having a cat guard the fish. Lee Nak-yon, chairman of the ruling Democratic Party (DP), also warned Byeon not to speak or act in defense of LH. It would be better for the land minister, who has already lost authority over real estate policy, to step aside before it’s too late.

It was different in the past. When a real estate scandal broke out, former presidents Roh Tae-woo and Roh Moo-hyun did not respond like that. After land prices jumped following the announcement in 1989 of the first New Town project across five regions in Gyeonggi, Roh Tae-woo ordered a joint investigation led by the prosecution to get to the bottom of the case. A crackdown over 14 months busted 13,000 speculators and arrested 987. Of them, 131 were government employees.

Upon speculative activity after the announcement of a second New Town project around the capital region in 2005, the Roh Moo-hyun administration took a similar route by establishing a joint investigation led by the top law enforcement agency. It arrested and punished 27 government employees.

Moon, who was Roh’s chief of staff, should be well aware that the prosecution must spearhead the investigation. The risk of an internal investigation could be big. Why is he taking such a risk?

Moon has led a humble and clean life. He refused an invitation to join a big law firm and stayed as a human rights lawyer. Before moving into the Blue House, he lived in a modest rented apartment in northern Seoul. He has no reason to be generous to speculators. Moreover, the president prizes fairness and justice.

Though not confirmed, Moon could have other reasons for not putting the case in the hands of criminal-busting prosecutors. His persona of being strict with himself but generous to others could play a part in the decision. But personal feelings must not get in the way of strict administration, because that constitutes an abuse of presidential power.

Yoon Seok-youl, who recently resigned as prosecutor general, recalled that former President Park Geun-hye invited her own doom because she could not stop abuses by her friend Choi Soon-sil. The prosecution must try to fend off corrupt connections around the president to protect the government and president. But the Moon administration gets all paranoid if the prosecution goes after its inner circle, said Yoon, who considered himself as having been loyal to Moon.

Yoon was entirely misunderstood — and mistreated — by the DP. All the lawmakers — who have come under investigations by the prosecution or who are on the list of suspects or witnesses — have come together to back a bill creating a new investigation agency in charge of six serious crimes, including corruption. Although Moon called Yoon “our prosecutor general,” the president has never put the brakes on the DP’s relentless attacks on Yoon. When Yoon finally offered to resign in protest of the DP’s attempt to strip the prosecution of its investigative power — Yoon called it a “destruction of our Constitutional spirit and judicial system” — Moon immediately accepted his resignation. What exactly are Moon’s real thoughts anyway?

A president who aspired to uphold justice and fairness wavered under pressure from powerful aides and lost a loyal servant. Those who tried to make big money from the government’s real estate policy would surely be cheering to see their biggest threat leave his office. An ominous path awaits Moon as he goes into the final year of his term.