Charlie Bottle

Iceland: When Too Big to Fail Becomes Too Big to Rescue

Very nice piece. The situation in Iceland while extreme it certainly serves as cautionary tale for all other countries including the U.S.. Clearly unless Iceland unlists subtancial help from other countries, which is unlikelly given that they have more than they can handle back at home (other than deposit guarantees on deposits held by Icelandic owned operations in their domestc markets, e.g. a Kaupthing subsidiary, the largest bank in Iceland, has about 150,000 depositors in the UK). The Country will be unable to nationalize all three largest banks and assume their liabilities without bankrupting itself. Besides what would is the point of using Iceland's tax payers money to safegard foreign creditors who should have know better? It should therefore focus on preserving deposits and assuming an interim credit provision role to the countires companies perhaps through Glitnir (whose liabilities represent perhaps about 100% of the GDP, having grown more than six fold in the last four years). It is noteworthy to point out that the fact that the government bought 75% of Glitnir does not necessarilly mean that the government is guaranteeing its debt (only implicitelly). It will be interesting (although regretful) to see how things unflod in Iceland.

PS: Mr Bombadil, what you have here are a group of people exercising their first ammendement right to express their opinions. Besides I don't think anyone was celebrating Iceland's demise.