Let’s go through these twenty reasons, then, shall we? – and see where we agree with the article’s author (with a very German name, I must say), Anna von Sperling. We might even keep a sort of running score; that nice, tapered, obviously feminine, nude (i.e. no rings) finger there pointing accusingly to the right at the article’s head starts us out with “one” . . .

China: Responsible for the mess we’ve gotten into due to their long-standing artificially low rates of exchange for the Yuan, which enabled them to accumulate gigantic reserves of western currency – mainly the dollar – and drive interest rates way down as they sought to lend it back, thus setting off the housing bubble. And then, as Von Sperling puts it, “at the same time they had the cheek [den frækhed] to pump out cheap products on the world markets.” What’s wrong with that? you ask. It held down inflation and so led everyone to believe that these good times could last forever.

Hmmm . . . don’t know about that last part. Still, we already have one feminine, tapered, etc. finger out for “one,” so let’s go with that.

Foreigners: (The actual Danish term here is Udlandet, meaning “that part of the Earth that is not Denmark.”) You knew this one was coming, didn’t you? I’m just surprised it didn’t head the entire list of twenty. What, specifically, did “foreigners” do? Writes Von Sperling, they “forgot about morals and the market’s gentlemanly rules.” In fact, she adds, the Danish economy has been doing fine lately; prime minister Anders Fogh Rasmussen says so himself (although, to be honest, that is pretty accurate). So it is that “outside of Denmark” that has messed itself up, and the main task for the Danes is to keep these barbarians (expressed not that particular way, but rather as “those who are not acquainted with the Danish merchant-ethic”) away.

I don’t know about that; I give this one a “zero” for now.

Osama Bin Laden: Yes, Ms. Von Sperling also attributes the present financial mess to this evil master-mind. How is that? Because the September 11 attacks scared the US central bank (the Federal Reserve, that is) into holding down interest rates, and thus giving free rein to the Bubble.

Hmmm . . . “zero” for now.

The Democrats: Because, as John McCain has alleged, it was during the last Democratic administration (i.e. under Clinton) that proposed reforms for Fannie Mae and Freddie Mac were rejected – and that “loans to people too poor to pay them back were set on turbo.”

“No go” here as well – and I also don’t like Ms. Von Sperling’s tone with this one, where she writes “last time we checked, Clinton was a Democrat . . .”

Thatcher and Reagan: Because they, in the 1980s, did away with so much regulation “and put our fate in the market’s invisible hand.”

There must be something to that; after all, the late 1980s were marked by the Savings & Loan scandal in the US. But I hardly believe that all the regulation that would have worked against what the world is experiencing now was done away with back then. One half point.

The Iraq War: “The financial crisis started with the Iraq War,” she writes, and it’s not just Anna von Sperling who says this, she notes, but also Nobel prize-winning economist Joseph Stiglitz as well. This is because that war has cost too much, and so has “sucked money out of the economy,” eventually causing a rise in interest rates, the rise that finally pricked the Bubble – according to Steglitz. Or at least so she says.

I can certainly see a cause of the present troubles in the Iraq War, but doubt the line-of-causation Ms. Von Sperling lays out and allegedly attributes to Stiglitz. One half point.

Alan Greenspan: Now we’re getting warmer. Greenspan gets accused here of holding interest rates too low, for far too long – forgetting the famous old bromide from former Fed Chairman William McChesney – which Van Sperling quotes here – that it’s really the Fed Chairman’s main duty to take the punchbowl away precisely when the party is just getting started. And so US house prices on average more than doubled within a few years.

Agreed. One point.

Opaque financial instruments: (Eeeeeuuuw, it looks like “opaque” in Danish is uigennemskuelig!) “Derivatives, futures, forwards, options and swaps,” which only those with both a higher degree in math and “well-developed powers of abstraction” could understand. “They promised fast money at a minimal risk and everyone forgot that there is no such thing as a free lunch,” Ms. Von Sperling writes. No less than Warren Buffett, she points out, termed them “financial weapons of mass destruction” five years ago.

I have a sneaking suspicion that Ms. Von Sperling really does not understand derivatives, and so instead resorts to all this name-calling, when in fact they are understandable if you simply devote some time to studying them (as I have done). Still, their role in the current mess in indisputable – particularly CDS, or credit default swaps, and the fact that she does not mention these explicitly underlines my doubts about her true grasp of derivatives generally. One half point.

Extreme bonuses: (Meaning here “extremely high,” and not, as you may otherwise think, additional perks added to one’s salary like Alpine mountain-skiing or entrance in the Paris-to-Dakar desert-race.) These caused all the financial types to abandon everything else in favor of very short-term thinking. “Who cares about the future when one can buy a yacht tomorrow if speculations succeed today?” Von Sperling writes.

You will have picked up by now on the point that this sort of thing particularly grates upon the typical Danish egalitarian attitude – “yes, you should earn a lot if you succeed, but not too much.” Still, I can’t argue with her point, and so award her one.

Regulatory authorities: All that Ms. Von Sperling writes here is Sov… meaning, shall we say, “Sleep on . . .”

Sorry, I expect rather more explanation than that – no points.

Too much State: That is, the American government (generally at the federal level, it is clear, although Von Sperling nowhere specifies this). Guilty for two reasons: 1) Because it gave the banks enough assurances that it would be there if hard times ever struck, that those banks went ahead and took greater risks. And 2) Because it pushed the idea that everyone should become a home-owner, regardless of actual ability to repay mortgage loans.

Accepted. One point.

Moral hazard: This is closely related to the above point, particular the aspect about bank behavior. But here Ms. Von Sperling merely defines it for her readers.

No point.

The Media: In this section she accuses the Media of a number of things: Of being behind Iceland’s troubles, for example, by offering itself as a handy tool to hedge-funds seeking to bad-mouth the country’s economic prospects and then profit from the resulting fall in prices from the shock in confidence; of stoking Britain’s first bank-panic (she doesn’t mention which one that was; presumably Northern Rock) through over-the-top and panicky news reports; and of panicking the Danes themselves into believing that their country’s economic situation is worse than it actually is. In each case I think it was/is a bit more complicated than that. One half point.

Consumers: This is a strange one. At first you think that Ms. Von Sperling is complaining here about those “consumers” (really “aspiring home-owners”) who gladly accepted mortgages that in reality they would not be able to pay back. But then it becomes clear that she is writing here about buying too many flat-screen TVs instead.

It’s really taking out that unaffordable mortgage that is the valid point, and Von Sperling seems to bring it up for real a few points onward. (See “Mortgages to poor people” below.) What she’s talking about here, to the degree I can figure it out (i.e. “flat-screen TVs”), was more a symptom than a cause of what was happening. No point.

The USA’s balance-of-payments deficit: This, together with the government deficit (again, the federal government is implied here but not stated), has according to Von Sperling created a dollar-crisis.

Well, go check whatever source of currency quotations you prefer: the dollar is currently on an upswing against most other major currencies. She is incorrect here – at least so far. No point.

Mortgage brokers: As Von Sperling, they simply did their work and sold their houses to the highest bidders. Somehow that contributed to everything falling apart.

It did, in fact, but she does not explain how. No point.

Mortgages to poor people: Here we are: loaning money to people who, in many cases, you could be pretty sure would be unable to pay it back.

Right on. One point.

Short-selling: Supposedly a “quite ferocious new invention,” short-selling has in fact been around American securities markets, at least, for a long, long time. Von Sperling merely takes a stab at defining it, and finishes with “This [sort of thing] has to go wrong.”

No, no, no. In fact, most truly informed economists and market experts see nothing wrong with short-selling, and thus consider misguided the various restrictions and/or prohibitions on it that have been imposed on such activities recently in various markets. No point.

And finally . . .

Capitalism: You just knew this one had to come along, as well. Von Sperling writes: “Forget all the above. Crisis is natural, and will grow in proportion with capitalism’s growth. This had to go wrong. We were just waiting for it.” Yes, at least those who read and believed Marx’s Das Kapital were waiting for it; and of course Information, as intellectual a publication as (I truly say that) it is, represents in the final analysis opinion coming out of Denmark, which will inevitably to the Left. Still, if you care to think about it, it is quite likely that these tremendous financial troubles afflicting most of the world do constitute some sort of condemnation of all of our previous dearly-held capitalist tenets. A half point here

By the way, Ms. Von Sperling’s title promises twenty reasons, but she only offers 19. Times are hard indeed.

Final score, out of a potential nineteen: 7 1/2.

Actually, it is true that Denmark (together with most other EU states, but not including Spain, Ireland, or the UK – or Iceland, but Iceland is not EU) did not really go overboard with any housing bubble, and so one would think should be OK even in the face of these financial storms. But such a conclusion is much too facile; it’s a globalized financial world we live in, in which nothing more really than a collapse of confidence can swoop in and wreak serious economic damage to the most innocent of countries (and indeed, George Soros himself is now holding up the Danish system of mortgages as something to be emulated). The current meme is that the EU, with its lack of an over-all financial authority, is going to be less able to act to recapitalize failing banks and otherwise keep the financial wolves at bay. The coming weeks, or even days, will show whether that is true.

                          

But let’s do treat briefly the sidebar in that German version that you won’t find over in the English, the one headed “Portrait” and then, underneath that, “Der »Maestro«”. That means what you think it means, and is quickly followed by further descriptions of Greenspan as “the grand old man of monetary policy,” and “the magician.” You could hardly be blamed for dreading that the interview is about to turn into a hagiography. But luckily that is not the case, for in the final paragraph of that German side-bar the Die Zeit editors add that “These days Greenspan is accused of being to blame for the [current] financial crisis, that his cheap-money policies after 2001 fanned the speculative fever.” But he takes this occasion, i.e. in the accompanying interview, to reject such criticism, so we are informed.

Getting Waffly on Us

So let’s get to back that interview and cut to the chase: At about the 30%-mark into the piece, the challenge from interviewer Matthias Nass (whose last name means “wet,” if you want to read anything into that) comes as follows: “When the dot-com bubble burst at the turn of the century, you as Chairman of the Federal Reserve answered by lowering interest rates dramatically. Now you are critizised [sic] for having created the bubble in the real-estate market. How do you respond to this criticism?”

How Greenspan responds is that he gets all waffly. Hey, there have been real estate bubbles going on all over the place, not just in America where the Fed runs the monetary policy. (He is polite enough to concede that this phenomenon did seem to skip Germany, for one.) So it can’t be anything we did at the Fed, the cause must lie in “the decline in global long-term real interest rates,” which apparently is something akin to a force of nature, out of reach of any human intervention. In fact, he says, don’t tell me my cheap-money policies had anything to do with the subsequent rise in American real estate prices; “there is no evidence” of that.

“So your policy was right?” Nass follows up.

Japanese Threat

Well, I’m not saying that either, Greenspan responds; that’s another question entirely. He goes on to apparently make the point that while, yes, it’s true that the Fed lowered short-term interest rates “for a full year starting in mid-2003,” they had to do that out of fear for a long-term situation of depressed demand such as had occurred in Japan from the late 1980s throughout the 1990s. Whether that choice was correct or not depends on your assessment of how serious that threat of a Japanese-style long-term slump really was.

The discussion immediately goes on to the prospect of further financial bubbles occurring, and it’s here where Greenspan makes you do a double-take. Of course there will be more speculative bubbles – they’re a side-effect of prosperity, “one the consequences of successful financial and monetary policies”! It’s just human nature. So hell yeah, if you want to accuse me of stoking these speculative bubbles, I’m fine with that!

Somehow I hear an echo here of Donald Rumsfeld’s famously laconic observation in connection with the widespread looting following the capture of Baghdad, with which Coalition troops were instructed not to interfere: “Stuff happens.”