Latvia Jails Pessimistic Economist

We started the day with something humorous, let’s continue it with the “true but ludicrous”

…it’s a good thing I don’t live in Latvia because if I did it’s quite likely that I’d be in jail right now,  because “financial pessimism” is viewed to be subversive behavior in that country:

From the WSJ:

“RIGA, Latvia — Hammered by economic woe, this former Soviet republic recently took a novel step to contain the crisis. Its counterespionage agency busted an economist for being too downbeat.

“All I did was say what everyone knows,” says Dmitrijs Smirnovs, a 32-year-old university lecturer detained by Latvia’s Security Police. The force is responsible for hunting down spies, terrorists and other threats to this Baltic nation of 2.3 million people and 26 banks.

Now free after two days of questioning, Mr. Smirnovs hasn’t been charged. But he is still under investigation for bad-mouthing the stability of Latvia’s banks and the national currency, the lat. Investigators suspect him of spreading “untruthful information.” They’ve ordered him not to leave the country and seized his computer.

Finance is a highly touchy subject in Latvia, one that the state tries, with unusual zeal, to shield from loose tongues. It is a criminal offense here to spread “untrue data or information” about the country’s financial system. Undermining it is outlawed as subversion.

So, when the global financial system began to buckle this autumn, Latvia’s Security Police mobilized to combat destabilizing chatter about banks and exchange rates. Agents directed their attention to Internet chat rooms, newspaper articles, cellphone text messages and even rock concerts. A popular musician was taken in for questioning after he cracked a joke about unstable Latvian banks at a performance.

Just one problem: Much of the speculative buzz now turns out to ring true.

After insisting its banking sector was healthy, Latvia last month took over the largest locally owned bank, Parex, to save it from collapse. After denying it needed aid from the International Monetary Fund, the government is now in talks with the IMF.

Finance Ministry officials acknowledge that secret police won’t save the country from economic crises. But they do believe Security Police vigilance makes the public think twice before spreading uninformed gossip about banks.

“It is a form of deterrence,” says Martins Bicevskis, Finance Ministry state secretary.

Mr. Smirnovs says he will certainly be “more careful” about voicing his opinions in the future. But he scoffs at the use of security agents “as a medicine that only makes people more worried.” Until his detention, his bleak view of Latvia’s financial prospects was known only to his students and readers of small newspapers in his hometown of Ventspils.

“Now everybody knows who I am and what I think,” he says.”

Now yes, I know, I live in America and something like this would never happen here. BUT, let’s not forget that a lot of our Governmental policy (regardless of whether it comes from the GOP or the Dems) seems predicated on the idea that we’re merely dealing with a crisis of confidence.

E.g. they’re basically ignoring the spurious balance sheets of our Banks, Insurance Companies, etc, not to mention the fact that people don’t exactly lose confidence in a vacuum and there are dozens of legitimate reasons NOT to have confidence in various banks, debt securities, etc.

So at a certain level whether you try to mitigate the crisis by implementing confidence based solutions, or by jailing economists who speak truths you’d rather not hear, it’s just different shades of the same thing.

The question is: whether it’s the outgoing administration, the incoming administration or the misguided government of Latvia, it’s time for Governments to start approaching the root causes of the problem as opposed to trying to fix it via simply “injecting confidence”.

In any event I’m glad I don’t live in Latvia, because if I did I would be in Jail - LOL.

You can read the article in full here.

Source:

The WSJ: “How to Combat a Banking Crisis: First, Round Up the Pessimists” — Andrew Higgins, December 1, 2008.

Disclosure: at the time of publishing the author didn’t own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn’t be viewed as financial or investment advice.

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