Your point seems to be that social democracy leads to high unemployment and generally poor economic performance. The support you have provided for your thesis combines the underwhelming with the outright bizarre (higher standard of living in East Europe than in the Nordic countries? Greece a social democracy?). You appear to support a neo-liberal economy agenda, which Jim Henley, in the post that originally initiated his thread, correctly identified as thoroughly refuted (have you seen the news coming out from the Baltic states lately?). I’d like to hear a straight up defense of neo-liberalism, in the light of current events, from your, rather than your BS about social democracy

Also the poor lending standards were not just a symptom of the bubble, but an accelerent as well.

As far as the mortgages, the most basic problem seems to be the belief that housing prices would keep rising. Even the worst of the loans – the neg ams, the interest onlies – were manageable even for those who could not legitimately afford them so long as prices kept escalating such that they could sell or refi out before the payments escalated or the balloon came due. Now whose job is it to know that house prices do not only rise? At a minimum, the experts. If the experts are not going to realize and publicly state fairly obvious and important facts about the economy, what is their job? And how can we condemn people for taking mortgages they “couldn’t afford” when they actually could within the parameters of what they were being told was the macroeconomic situation going forward?

You missed one important element: the emergence of the new markets in derivatives, which allowed all of the debt instruments created in this speculation to be sold off by their creators(lenders). If all of the banks that had written these mortgages had been required to hold on to them, they would have been at least a little bit more careful. Though history does show us other examples of similar boom/bust cycles without any derivatives market…

It’s not clear, however, that financing bailouts will always leave you better off. Even if we accept the Keynesian model, we can imagine that a small country would like to simply free ride on the economic stimulus package of its much larger neighbors (assuming that various types of economic activity flow across borders). Some say that Ireland is pursuing a policy along these lines even now (though it’s questionable whether you could describe it as ‘small’…).

It’s not about the effectiveness of the welfare system. Rather, it’s about the drag and economic ‘narrowing’ that a bloated government sector and over-redistribution causes. Here are the OECD figures for taxation as percentage of GDP. Note that all of these countries (especially those at the top) have a history of major problems with long-term, structural unemployment:

1 Denmark 48,9
2 Sweden 48,2
3 Belgium 44,4
4 43,6
5 Norway 43,4
6 Italy 43,3
7 Finland 43,0
.

.
.

16 Germany 36,2

Although taxes are an important indicator of economic drag, over-regulation and over-unionization are the other usual culprits inherent to social democratic welfare states. For example, in Greece’ case:

The standardised unemployment rate has fallen from a peak of 12% of the labour force in 1999 to around 9% in 2006, but still remains among the highest in the OECD. High unemployment is particularly prevalent among certain vulnerable groups, particularly first-time job seekers (mainly the young) [...] high incidence of long-term unemployment, low monthly outflows from unemployment, long average job tenure, and low gross labour flows between industries – suggest that labour mobility, broadly defined, is relatively low. There is scope for policy to improve labour market flexibility, such as actions that reduce minimum labour costs and ease the relatively strict employment protection legislation, although this is not currently on the government’s reform agenda.
http://www.oecd.org/document/47/0,3343,en_2649_34321_38496367_1_1_1_1,00.html

Shall we talk about the seemingly endless labor strikes in France?

French strike brings travel chaos
French commuters face the bleak prospect of limited train services
France has suffered travel chaos after transport and energy workers broadened a strike in protest against President Nicolas Sarkozy’s pension reform.

Or, how ‘bout France’ solution to the financial crisis?

PARIS - France’s largest general strike in three years hobbled transportation, school, hospital and mail services Thursday as unions demanded that President Nicolas Sarkozy do better at protecting jobs and consumers during the global economic crisis.
http://www.msnbc.msn.com/id/28913714/

dsquared – “You can’t chuck a prawn around in Stockholm or Helsinki without hitting a start-up entrepreneur”

Exactly right LOL!

Thousands of Finns as “enterpreneurs” against their will
There is an interesting article in today’s Helsingin Sanomat (Finnish ed. still) of this phenomenon of required of having “toiminimi”. Basically started as outsourcing, the end result is people who want “a paid job” end up as “enterpreneurs” without any clue of what is going on. Except when they decide to try get unemployment benefits etc. and find out they aren’t entitled to anything.
http://www.finlandforum.org/viewtopic.php?f=3&t=1472

Ok…aside from them, there are hordes of ‘freelancers’ working in the forestry and building industries. They’ll chop some wood and build you a nice summer cabin, all for some pocket change and a daily ample supply of beer. I suppose they count as ‘entrepreneurs,’ too.

But if lax regulations and sub-prime lending were critical factors that made the problem in the U.S. worse, then surely that would have shown up in aggregate statistics as well as regional ones, no? And the availability of NINJA loans was nationwide in the U.S.; if that was a critical factor in inflating the bubble, then why only in certain areas in the U.S. and not others?

It seems to me that the better explanation is this. Krugman’s Flatland and Zoned Zone theory was correct. The development limits in the ‘Zoned Zone’ was a key ingredient that got the price run-up started. And once started, the mania spread on itself as people saw their neighbors grow vastly wealthier over the course of a few years, felt like chumps for not getting rich too, and became desperate to get into the game. The NINJA loans reflected a desire of mortgage brokers and lenders to get as big a share of the churn as well, but the bubble didn’t depend on these lending practices (as we see in other countries with bubbles but no NINJA loans).

This also explains why so many European countries saw greater rises than the U.S.—they are smaller, denser, and have greater restrictions on housing development, which means a higher percentage of ‘Zoned Zone’ and a lower percentage of ‘Flatland’.

I believe the basic formula for the global housing bubble was:

1. A long economic boom (with only brief and mild pauses)
2. Zoned Zones
3. Contagion. Housing price increases in San Diego, London, Madrid, etc, were mutually reinforcing (in that the existence of the phenomenon in other places made it seem inevitable/sustainable/rational here as well).

Typo fixed. You can’t chuck a prawn around in Stockholm or Helsinki without hitting a start-up entrepreneur, and Denmark is almost parodically the home of a million and one small furniture-exporting businesses. I mean, I am terribly sorry for LF, whose family and work seem to oblige him to live in some of the nastiest slums of Stockholm, but they really aren’t representative of the Nordic economies.

http://www.bls.gov/news.release/empsit.t12.htm