We have enough bizarre encounters of fact and fiction in our home-grown banking system, powers that enabled our governments to cope and eventually get out of the Great Depression. Things that should have been remembered have been forgotten and matters that have been forgotten that have ended up in control of our banking system. And if that can happen within a democracy, imagine what can happen in countries that have been under either direct dictatorial regimes, or even their next-door neighbors.
That is why the experiences of tiny Latvia, that for decades was part of the Soviet empire provides a colorful instance of how banking and democracy in the variety of surprising ways in which fact and fiction that can come together in defining banking in a period of troubled times.
The Wall Street Journal (12/01, "How to Combat a Banking Crisis. First, Round up the Pessimists" by Andrew Higgins paints a picturesque case in point): "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 regard 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 cell phone text messages and even rock concerts.
"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.
"Mr. Smirnovs says he will certainly be ‘more careful’ about voicing his opinions in future. But he scoffs at the use of security agents ‘as a medicine that only makes people more worried.’ Until his detentions, his bleak view 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. The ingredients of Latvia’s troubles are much the same as elsewhere: a credit crisis, a slump in property prices and a severe economic slowdown. But in a tiny nation long wary of big neighbors, primarily Russia, but also Sweden, economic woes are never just about money.
"‘It is regarded unpatriotic to criticize,’ says Alf Vanags, director of the Baltic International Centre for Economic Political Studies.