Who is to blame for the financial crisis in Latvia
Who is to blame for the financial crisis in Latvia and the ensuing recession? Considering that seemingly everybody has someone/something they like to blame it is somewhat surprising to me that a more formal, deep and scientific investigation has not taken place.
Some other countries with major financial crises have done so, e.g. the Americans with the Financial Crisis Inquiry Report, Iceland did it with their report of the Special Investigation Commission, and Ireland has set up a Central Bank Commission to look into their huge banking crisis.
Why not do so here? I mean, there are several contenders in this blame game.
- Readers of my entries should know my main culprit, the far too procyclical fiscal policy during the boom days.
- Others, e.g. Jānis Urbanovičs of Harmony Centre, prefer, conveniently, to put all blame on foreigners aka ‘Swedish banks'. I don't buy that but I would like to know more about their mistakes: Did they believe in much faster income convergence (which would have made loans easier to repay)? Did they mistake market share for profits? I don't know but I would like to know.
- Bank of Latvia? Did they promise the euro too soon, adding to the massive borrowing in EUR? They warned early against excessive fiscal spending but could they have done more? Let someone investigate.
- The regulator (Financial and Capital Markets Commission, FKTK) – I have no idea, I must admit, but if others could unearth whether or not some blame rests there, let's know.
- A sinister cabal consisting of the IMF, the EU and other evil foreign wrongdoers? – a few cranks seem to subscribe to that; let a commission find out that it is not so.
- But please also address the role of borrowers. Were some misled? Possibly. Were some naive? Sure. Were too many obsessed by seemingly endless opportunities of borrowing? Definitely! But what was the role, if any, of malign borrowers with no intent of repaying? Or too cosy-for-comfort relations between lenders and borrowers (e.g. a major issue in Ireland)?
- Other contenders that I have missed?
The first thing that is required for such a report to materialize is to set up a proper independent team of researchers/investigators and I guess that is a stumbling block too big for this to materialize…. A pity indeed.
Komentāri (56)
idzelme 07.03.2011. 14.59
Responsibility.
Reason for such deep crises in Latvia I see in no responsibility.
One by one as you mentioned:
1) politicians are not responsible for long term country development. This is fault of political(election) system created in Latvia.
2) I would say all banks. Banks in long term will not loose money from this crises. Credits are given under condition that property and loan belongs to bank. Now they have property and will receive landed money. To make banks responsible for given credits solution is “returned key principle”.
3) Latvia Bank in all this story look like most responsible. Mistake with EUR promotion is not critical in such dramatic money landing. What will be the difference if they promote to take lats for loans?
4) FKTK – sorry I still do not understand what they are for. Look like they are politically not economically oriented.
5) It is more from conspiracy theory. Unfortunately financial sector world wide didn’t act with responsibility. Only now we can hear about sustainability.
6) Borrowers also didn’t act with responsibility. But I believe that average borrower do not have economical degree and hardly are capable of making assumption of they long term income and cycles in economic processes. I would lay this responsibility to the banks. Banks have capacity and educated personal to help borrowers make right decition. And with “returned key principle” borrower has opportunity to control did bank made good recommendation.
“Best” recommendation from bank few years ago: “You have a problems. Come to us we will lend you money that will solve all your problems”.
It is not responsible bank policy.
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daina_tabuna 07.03.2011. 13.41
I still believe that most the blame should go to our politicians who only in the middle of 2007 made changes in law which says how and who can get loans. It took almost 3 years for them to finally approve that loan should be given only upon document from Tax authority about loaner real income. [Speculation here is that politicians did it intentionaly because political parties were sponsored by real estate profiteers].
And second to blame is FKTK who was not insistent enough to get Saeima approve Credit registry. In that situation was possible for those profiteers to take loans in different banks by showing the same paper issued by employer stating huge salary (even though sometimes salary was few hundred lats). And again- it was very convenient for politicians to keep that situation so their source of donations is so generous.
World level crisis was just a co-incident to our which made it so deep. We would have it sonner or later without crisis in USA, Iceland or Papua New Guinea.
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Vineta Ungailo 08.03.2011. 20.44
sprechen sie Deutsch? vieleicht konnen wir in dieser Sprache diskutieren? die Wirtschaft ist eine interesante Sache. einverstanden?
aga eesti keel? mulle meeldib majandus rakida. kas te olete majandus ka oppinud?
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@Dzintars > Vineta Ungailo 09.03.2011. 14.30
Vi kan da også fortsætte på dansk, om det måtte ønskes… :-)
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