Ireland and Latvia

Uncle Milton engages in his usual sophistry as he shills for neoliberalism again. He’s been shilling for neoliberalism since almost the very day he showed up on this site, but he always denies it. Whatever.

…It was US government directed policy and willful neglect of fraud which help create the property bubble…As the Soviet Union and Latvia…why did they shift away from command economies in the first place…?
Here you call Ireland a social welfare state:
but now you blame their property bubble and implosion on neoclassical economics…?

Ireland was affected by the global financial crisis set off by neoliberalism in the US. UM continues to deny the obvious fact that neoliberalism caused the financial crisis, when it’s clear that it did.
Anyway, the neglect of “fraud” as you put it is part and parcel of the neoliberal project.
Yet it’s unclear whether the sale of mortgages to unqualified buyers and then repackaging the toxic loans to suckers as mortgage based derivatives was even illegal. Apparently it was completely legal! So there was no fraud at all, though there should have been.
There was fraud in the foreclosing of homes after the crisis hit, but this is not what caused the crisis. It now appears that up to 75% of recent foreclosures were deliberately fraudulent. The logical thing to do would be to wipe out the foreclosures and give these folks back their homes from the banks. However, the neoliberals are screaming that this will “destroy the US housing industry.”
Neoliberals always shill for fraudulent businesses, because businesses love to commit fraud. Fraud is pretty much what business eats for breakfast every day. Did you know the Chamber of Commerce opposes every attempt to write new business fraud laws and go after fraudulent businesses? Clearly the CoC loves fraud. Did you know that District Attorneys who aggressively pursue business fraud are almost always liberals and that rightwing district attorneys typically let businesses get away with murder? Did you know that in the US, rightwing administrations typically have by far the worst instances of fraud and corruption? The Reagan and Bush Administrations set new records for corruption and fraud in the Executive Branch.
Yes, Ireland is a social democracy. However, Ireland instituted neoliberal economics in order to deal with their deficit problems after the crash. Yes, social democracies are practicing neoliberalism. Sad, no?
The problem with Latvia was not merely “shifting away from command economies;” all of the Baltic states went totally overboard and embraced radical neoliberalism, possibly as a reaction to Communism. After the financial crisis hit Europe, many countries reacted with stimulus spending to cushion the blow (Keynesianism). All of these countries did well.
However, the Baltics and Ireland followed neoclassical economics and engaged in massive austerity cuts in the face of a major recession. They were rewarded with recessions and depressions, wage losses of up to 30%, 20% unemployment, capital and worker flight, and other horrors.
It doesn’t work. Neoclassical economics is the philosophy of economic destruction.

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0 thoughts on “Ireland and Latvia”

  1. To Rob:
    I have stated my position many times that I do not subscribe to some of Neoliberalism’s positions such as unregulated free trade, free flow of labor, and in some instances free flow of capital (which can be devastating to small countries when you have a Goldman Sachs running around..) Please point out where I have supported these (fundamental) parts of Neoliberalism if you think I am wrong.
    As I suspect the pinnacle of what Milton Friedman thought of as the most Laissez-Faire state is Hong Kong: http://en.wikipedia.org/wiki/Neoliberalism#Hong_Kong
    I think as James Shipper said, different countries, depending on size, resources, and at what stage they are in economic development can use a mix of economic policy.

  2. To Rob:
    Yes, Ireland is a social democracy. However, Ireland instituted neoliberal economics in order to deal with their deficit problems after the crash.
    Ummm I don’t think that’s correct:
    http://en.wikipedia.org/wiki/Economy_of_the_Republic_of_Ireland#Guarantee_of_banking_system
    Nationalizing a bank isn’t Neoliberal policy.
    What are you calling Neoliberal about Ireland in regards to it’s reaction to the crises? You realize that Ireland (and Greece..) are confined by the Mastricht treaty since they are Eurozone countries…? I can’t say I am well versed incredibly well versed in Neoliberalism but I don’t think Neoliberals would advocate a nation surrender their currency and join a currency union with many other countries (or varying sizes and economics strengths..) since free floating exchange rates are a principal of Neoliberalism.

    1. What is funny is that you always argue with me, but you are usually wrong. If I were you, I would be embarrassed.
      You need to read more carefully.
      The financial crisis radiating out from the US affected all of Europe. Most countries dealt with it by stimulus spending to cushion the blow (abhorred by neoliberals) and others, such as Ireland and the Baltics dealt with it by making massive deficit reduction austerity cuts in the middle of the recession (neoclassical economics), precipitating depressions.
      I’m not discussing bank nationalization here. I’m discussing austerity measures by deficit hawks like you. They proved catastrophic in Europe, but you keep advocating this form of economic destruction anyway.
      Neoliberalism is a form of untrammeled, radical, free market capitalism. Most states practice a mixture of neoliberal policies mixed in with some socialist policies. Yes, the EU is not a neoliberal organization, but it is organized according to neoliberal principles. For instance, all EU states must keep their deficits below 3% of GDP every year, otherwise they are in violation of EU policies. This is a neoliberal policy – mandating low deficits and austerity measures in cases of “overspending.”

      1. To Rob:
        The financial crisis radiating out from the US affected all of Europe. Most countries dealt with it by stimulus spending to cushion the blow (abhorred by neoliberals) and others, such as Ireland and the Baltics dealt with it by making massive deficit reduction austerity cuts in the middle of the recession (neoclassical economics), precipitating depressions.
        Nope I read it… Ireland had it’s own property bubble… (Germany which now has the lowest unemployment in 18 years did not..) that’s why it has been affected so severely… Ireland (and Greece) were basically forced to constrain their spending by the Mastricht treaty. Ireland and Greece are constrained because they no longer have their own currencies like they did 10 years ago. The Irish government actually did spend more money in 2008 and 2009 but it was on paying the growing unemployed and bailing out their banking system.
        http://en.wikipedia.org/wiki/2008%E2%80%932009_Irish_financial_crisis#Increasing_debt_spiral
        Germany didn’t have this massive debt problem to begin with so it was able to rebound quickly. Sure some spending (if you have the money and spend it wisely..) may be appropriate in downtowns. One of the most significant moves was for the fed to backstop savings accounts… raise the FDIC insured savings…and inject liquidity into the system. Unfortunately, reading over the current stimulus package, I think most of it is inefficient and not effective for the long term. No Hoover or Grand Coulee damns are going to be built. The idea for funding energy Independence is a good one but was hardly funded.
        As I said I believe a mix of economics for different nations depending upon development, size, and resources is appropriate.
        The reason I argue with you is not to support any concept like Neoliberalism or Neoclassical economics but to point out what I consider are flaws in the argument.

  3. To Rob:
    Yet it’s unclear whether the sale of mortgages to unqualified buyers and then repackaging the toxic loans to suckers as mortgage based derivatives was even illegal. Apparently it was completely legal! So there was no fraud at all, though there should have been.
    There was most assuredly civil fraud since most of the securities have a “put back” clause if the quality of the loans are not what the loan originators said they were and put backs have happened.. I suspect they would be happening on a much wider scale if not for US government involvement to slow something like that down. There were over 1000 people put in jail in the late 80s and early 90s for the previous real estate fiasco.. but now the problem is now the fraud was so rampant and widespread that basically Bank of America (definitely) Citibank (definitely) and like JP Morgan should fail. Toss in Goldman Sachs. Given the reaction when Lehman went under I think the bank regulators are scarred we would have a global melt down. If you can’t nail people for fraud I am pretty sure you could nail them for other things.

    1. Ok, but turning a blind eye to fraud is a classic neoliberal response to regulating business. They believe that business should not even be regulated at all. Their attitude towards fraud prosecutions is the fewer the better. Ok, there was some fraud, but that was not the whole problem. The problem was the loosening of mortgage regulations that allowed this mess to take place in the first place. It used to be that banks could only loan to people who were very quailified. They got rid of most of those regulations a while back (neoliberalism) because banks wanted to be able to loan to anyone whether they could pay back or not. In order not to have to eat the bad loans, banks came up with a scam to sell the loans as derivatives in some mortgage type of investment vehicle. Therefore, the loans were out of their hands and they did not have to worry whether they went belly up or not since someone else would be holding the bag. Also they farmed out all of the mortgage loans to independent firms, once again so they would not have to deal with the mess of loaning to obviously unqualified people.
      That all of the above was allowed to occur in the first place indicates a lack of regulation. Lack of regulation = neoliberalism.
      So you are wrong to let the neoliberals off the hook and chalk it all up to fraud. It was mostly lack of regulation with a small part of fraud.

  4. The FBI of all entities was warning of widespread fraud in 2004. In the mortgage industry underwriting and appraisals have strict guidelines. Those guidelines were simply ignored and the process of packaging loans with such minimal underwriting and selling them as AAA is simply fraud.
    By the way the various stimulus packages in Europe are not in violation of Neoliberal economics:
    “Monetarists (Chicago School) argue that there was no inflationary investment boom in the 1920s, in contrast to both Keynesians and to economists of the Austrian School, who argue that there was significant asset inflation and unsustainable GNP growth during the 1920s. Instead, monetarist thinking centers on the contraction of the M1 during the 1931-1933 period, and argues from there that the Federal Reserve could have avoided the Great Depression by moves to provide sufficient liquidity. In essence, they argue that there was an insufficient supply of money. This argument is supported by macroeconomic data, such as price stability in the 1920s and the slow rise of the money supply.”

    1. I think Friedman means that the Fed should have lowered interest rates to near zero. Recall that the Fed cannot inject stimulus money into the system, only indirectly by lowering rates. Friedman does believe in a role for a central bank, and he is a monetarist.
      I’m not aware of a single neoliberal anywhere who supported this stimulus, or any stimulus anywhere at any time. Friedman doesn’t believe in government spending. Recall: that is Keynesian, and neoliberals hate Keynesians’ guts.
      The voice of the neoliberals in the US is the Republican party. Radical neoliberals have their voice in the Pauls and the Republican Party. Recall how furious Ron Paul was at the TARP and stimulus package spending bills. He was saying to let the free market correct itself. He implied that if there were to be a depression, then there would be one. This is extreme neoliberalism, more or less Austrianism. Recall that Friedman at least believes in a central bank.
      Why did the system engage in this mass fraud in the first place?! Because regulations were loosened to allow it. You shouldn’t be allowed to write a mortgage for anyone – regulations were loosened to where you could almost sell a house to a dog. Nor should you be able to repackage mortgages as derivatives and sell them. It’s a recipe for disaster. The derivatives market is unregulated.
      Most of the folks I read, including economists, see the crash as a failure of neoliberal laissez-faire economics – lack of regulation. I guess you don’t believe in regulations because you keep dishonestly saying that neoliberal laissez-faire economics – lack of regulation did not cause the crash, it was this mysterious entity called “fraud.”

  5. To Rob:
    I guess you don’t believe in regulations because you keep dishonestly saying that neoliberal laissez-faire economics – lack of regulation did not cause the crash, it was this mysterious entity called “fraud.”
    Why do you put fraud in quotes…? There is nothing mysterious about it.. Especially when the US federal police (FBI) reported extensive fraud in the mortgage industry as early as 2004. There are both civil and criminal measures against it. Laws and/or regulations don’t work if they are not enforced. Most assuredly there was widespread fraud and violation of industry regulations in 2003 to 2006.
    Recall that the Fed cannot inject stimulus money into the system, only indirectly by lowering rates.
    Not true… yes it can and yes it has. Where that stimulus goes is another matter.

    1. I don’t know that much about the Fannie/Freddie thing, but blaming the whole financial mess on them is insane. The problem was the lack of regulations on Wall Street and the resulting scamming and I guess fraud. I believe that both parties were involved in Fannie/Freddie’s role in this mess.
      The problem is neoliberalism. What failed in the financial crisis, despite UM’s endless blatherings above, was neoclassical economics. That’s what deregulated the financial sector and led to the whole mess and yes, the fraud. The fraud could have never happened without the deregulation in the first place.
      It’s a Republican LIE to blame this whole mess on the Democrats and Fannie/Freddie.

  6. To Rob:
    was neoclassical economics. That’s what deregulated the financial sector
    Can you cite which deregulation caused the mess..? Are you thinking of the repeal of the Glass–Steagall Act..? If so understand that Europe and Canada never had a separation between investment banks and depository banks.
    There were some important policy changes made by Fannie Mae and Freddie Mac in the late 90s and in 2002 and 2003 the Federal Reserve under Greenspan in response to the 2002 recession brought about by dot com bubble and the 9/11 dropped the discount rate to 1% and jacked up the money supply. That’s when the gasoline hit the fire. If you can point to the regulation changes that you believe caused the problem I will check them out.

  7. To Rob:
    I don’t know that much about the Fannie/Freddie thing, but blaming the whole financial mess on them is insane.
    Well there was no single point of failure so we are in agreement there, however take a look at this article from the Village Voice. Quasi government entities Fannie Mae, Freddie Mac, and FHA most assuredly had a hand in the disaster… the Fed by lowering the Fed discount rate to 1% (and keeping it there way too long…) and pumping up the money supply added gasoline to a slowly burning fire.
    http://www.villagevoice.com/2008-08-05/news/how-andrew-cuomo-gave-birth-to-the-crisis-at-fannie-mae-and-freddie-mac
    I definitely find flaws in pure Neoliberalism (as I have stated multiple times….) such as free flow of trade (less so with countries of equivalent GDP per capita that have created their own industries such as Japan or Germany… but especially so with countries such as China wherein a US company shuts down production in Ohio and opens up a factory in China..) free flow of labor (busting the meat packers union with illegal labor…) and free flow of capital (especially with smaller countries..) however laying everything at the feet of Neoliberalism (however you seem to be defining it and you seem to interchanging Neoliberalism and Neoclassical economics) for the mortgage crises seems poorly thought out. (Please correct if I am wrong… but saying I am blathering is not exactly a well reasoned rebuttal…)

  8. To Rob:
    Another important piece of the puzzle, the burgeoning money supply in the late 90s and 2000s:
    http://static.safehaven.com/authors/swanson/4152.gif
    And by the way the Federal Reserve controls the reserve requirements in the US.
    http://www.federalreserve.gov/monetarypolicy/reservereq.htm
    “Reserve requirements are the amount of funds that a depository institution must hold in reserve against specified deposit liabilities. Within limits specified by law, the Board of Governors has sole authority over changes in reserve requirements. Depository institutions must hold reserves in the form of vault cash or deposits with Federal Reserve Banks..”
    Loosening standards at Fannie and Freddie set up a potential problem but Alan Greenspan failed utterly and completely at his duty as the Fed Chairman.

  9. To Rob:
    It sounds like you are getting much of your information from Stiglitz (or people who follow Stiglitz…) you might want to note that in 2002, Stiglitz co-authored a paper along with OMB chief Peter Orszag entitled “Implications of the New Fannie Mae and Freddie Mac Risk-Based Capital Standard” that examined the default risk to Fannie Mae and Freddie Mac. The authors constructed a model to measure the likelihood of default by these GSEs under a prolonged 10-year period of severe economic collapse. They concluded that these agencies’ risk-based capital standard was adequate to survive such a highly unlikely prolonged scenario, writing that “. . . on the basis of historical experience, the risk to the government from a potential default on GSE debt is effectively zero.” It only took a few years to disprove these claims and under conditions far less onerous than those assumed by Stiglitz.
    http://docs.google.com/viewer?a=v&q=cache:9jIVf5ksLvIJ:citeseerx.ist.psu.edu/viewdoc/download%3Fdoi%3D10.1.1.8.3820%26rep%3Drep1%26type%3Dpdf+%22Implications+of+the+New+Fannie+Mae+and+Freddie+Mac+Risk-Based+Capital+Standard%22&hl=en&gl=us&pid=bl&srcid=ADGEESiZA7l5CU51phYk-uGIlbP4AGwVpkiMXPrAhKq7K3OYkN8akv8gVL0pAXr7W4JmOApkg1_ECMTcEqhrYQSx5fYhVmxcHvSuSrigP3qirBHueatnjfKAPnu-U52zpR2HWISxcwjg&sig=AHIEtbQOYqWwD8Jm8Pioer_q3wIxWIy_Mw

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