Prague, Czech Republic
While monitoring the almost-global financial meltdown from here in Central Europe, I’ve noticed a defensive smugness in some of the American mainstream media reports on the financial straits of European countries. The tone seems to say, “Well, the Europeans may be in even bigger trouble than we are.” There’s no proof of the claim, of course, because no one knows how bad it’s going to get anywhere. And that shows what a sad sack of you-know-what the so-called science of economics has proven to be.
But yes, there’s a big problem here. Eastern European countries like Hungary and Romania who’ve borrowed big from Western European banks may now default on the loans. But the story behind how that happened is a universe away from the story of what has happened in the USA.
In post-USSR Eastern Europe, you see, the borrowed money hasn’t been used to create bogus investment instruments to sell to other morons in some financial circle-jerk that depends on fake real estate values. Okay, maybe a little. But mostly the money’s been used to build and repair infrastructure and to repair schools and hospitals and to generally do all those good things that lots of USA liberals now want President Obama to do, ie. invest in public works as FDR once did.
Of course, some Eastern Europeans have borrowed money to buy housing. But they see housing as homes, not as tools for speculation or investment. And in any case, most folks already own their homes outright; when communism fell, they simply obtained title to the homes they already were living in. So mortgage defaults here are very rare, and where it occurs you mainly find western-backed real estate developers who’ve overextended.
Also, people here do not have lots of consumer debt. In fact, they have very little of it. They don’t have credit cards, for example, so have no credit card debt. I suppose the main or only consumer debt, really, is with automobiles; people who can afford it do so finance the purchase of new cars.
I say all this to emphasize that neither Eastern Europeans nor Central Europeans live beyond their means in the way so many US Americans do.
So what’s causing the economic crisis in these former USSR countries of Eastern Europe? Let’s use Hungary as an example. After the collapse of the USSR 20 years ago, Hungary was cash poor and didn’t have an established national banking system, but it needed investment. It couldn’t simply print money as the USA is now doing. So instead, Hungary borrowed funds from Western banks (such as the Austrian bank Raiffeisenbank, which happens to be my personal bank here in Prague).
Now banks like Raiffeisenbank—which got caught in the USA-led subprime circus by trusting Moody’s and the SEC and so did business with the Lehmann Bros. and Citicorp’s and AIG’s—need that money back to cover their shortfalls, and they want it precisely when Hungary, through a global domino effect, is suffering the same economic crisis that’s choking the USA economy. So the Hungarians got screwed because Raiffeisenbank (and other European banks) got screwed by Wall Street, who somehow managed to screw everyone.
And now the Czechs, who carry almost no personal consumer debt and live within their means and borrow very little money, are getting screwed because the falling dominoes knock down everyone. The trail of this catastrophe leads directly back to US American consumer greed and the Wall Street gangsters (guys like Alan Greenspan and Chuck Prince and Hank Paulson) who exploited it and hid the consequences so they could line their own pockets. They all belong in prison. But instead, average folks will pay the price, not only in the USA but also in Hungary and Poland and Ukraine and the Czech Republic.
Oh, did I neglect to mention the Brits? Well, the UK financial gangsters are up to their eyeballs in this, as they’ve acted in total complicity with Wall Street. (In fact, lots of those guys consider London to be more powerful globally than NYC). So bankers like the UK’s Fred Goodwin belong in prison with Greenspan and Prince and the others.
Do I sound angry? I hope so. Because what we are experiencing is the wonderful globalization that short-sighted pinheads like the New York Times’ Thomas “The World Is Flat” Friedman have been promoting as the salvation of humanity. (Of course, you wouldn’t know this from reading Friedman’s recent columns; he’s now is as outraged as everyone else. What a guy!)
So let’s not forget history—especially recent history. The globalization freaks never saw anything but blue skies. They forgot that the sun also sets. And that pollution released in New York shows up in Eastern Europe. And so do the consequences of other toxic things, like greed.
Christopher Cook is a writer who lives in Prague.
From The Progressive Populist, April 15, 2009
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