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Iceland's PM warns of "chaos" (and not getting an invite to Davos or Jackson Hole) after...

Iceland's PM warns of "chaos" (and not getting an invite to Davos or Jackson Hole) after voters again reject a plan to pay back countries whose citizens lost money in the banking collapse. The dispute will end up in court, where the U.K. and Netherlands can explain to a judge why a country's citizens should be liable for the actions of a private financial institution.
Comments (76)
  • wyostocks
    , contributor
    Comments (9051) | Send Message
     
    Good for the people of Iceland.
    Could anyone ever imagine American politicians allowing the "people" to decide such things rather than the "elected elites"?
    10 Apr 2011, 10:15 AM Reply Like
  • kcr357
    , contributor
    Comments (567) | Send Message
     
    Why would anyone thumbs down that comment?!
    10 Apr 2011, 10:57 AM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2606) | Send Message
     
    I would venture to make a guess - they are the (greedy) bankers and their friends and employees at large.
    10 Apr 2011, 11:40 AM Reply Like
  • Tricky
    , contributor
    Comments (1590) | Send Message
     
    If my understanding of the situation is correct, what basically happened is that Iceland took a ton of international money (which includes UK and Dutch funds thru those international institutions) to bail out those banks and has now decided that only Icelandic depositors will be made whole, while foreign depositors will be screwed.

     

    Not so heroic.
    10 Apr 2011, 11:49 AM Reply Like
  • Michael Clark
    , contributor
    Comments (9744) | Send Message
     
    Who decided to loan money without bothering about standards of lending -- because they KNEW they would be bailed out in the end, after making huge profits on fess and underwriting? It WAS NOT the taxpayers who did this. The banks did it. Should taxpayers pay the bill? I don't think so. If the banks fail in a big way, they should fail in a big way. And we should start over with a new understanding: no one will be rewarded for immoral or unethical behavior, no matter how big they are. AND: huge bank profits are always accompanied by huge indebtedness of the population. That is, money is transfered from one pocket (the public's) to another (the bankers). Better to have not-for-profit banks with a rich public with almost no debt.
    10 Apr 2011, 12:01 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    so I guess you would be ok with simply abrogating the FDIC guarantee post any bank failure and letting the little people - the blessed middle classes - lose their deposits because that is what happened here

     

    just put it to a vote and let the idiots decide - is that it?

     

    ordinary people in Britain and the Netherlands put their money into these banks

     

    I guess they believed or were told that their deposits just like the FDIC does over here had some level of guarantee

     

    when that guarantee did not get honored by Iceland - the UK and Dutch Governments themselves honored these - and now they want their money back

     

    and so it is ok for the people of Iceland - many of which benefited from the tide of money that flowed over them - to decide that foreign depositors should be hosed to ignore responsibilities?

     

    I am impressed that 40% of them showed a level of foresight and vote for paying it - the future for Iceland with both public and private sectors locked out of capital markets is a little grim

     

    E
    10 Apr 2011, 12:12 PM Reply Like
  • Joe Morgan
    , contributor
    Comments (1561) | Send Message
     
    And do you know how much homeowners are still sleeping on their homes without paying... a lot....and a taxpayer that has paid their mortgage each month don't receive that benefits and have to paid for other people's mistakes....that my friend is parasitism.....

     

    Why do I have to pay for the mistakes of careless people, that bought overpriced homes?
    10 Apr 2011, 12:13 PM Reply Like
  • Joe Morgan
    , contributor
    Comments (1561) | Send Message
     
    Be careful Doc, the apocalyptic crowd is in full force today.
    10 Apr 2011, 12:17 PM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    You are uncorrect, which is not understandible since British politicians such as Alexander have been spinning the story.

     

    1. The Icelandic banks did not get bailed out, they went bankrupt and bondholders were wiped out.
    2. The foreign depositors won´t get screwed. They were paid out by their government.
    3. The "no" vote means that the Icelandic public wants an objective court to rule what its obligation are precisely.
    4. The bankrupt bank still has assets and will begin to pay out this year as they start selling the assets. They dutch and british government will be on the receiving end.

     

    Iceland has never stated that it will not honor its obligations.
    10 Apr 2011, 12:27 PM Reply Like
  • swissfrank
    , contributor
    Comments (516) | Send Message
     
    Not sure I recognize the actual event from your summary, Tricky. UK citizens paid money into an Icelandic bank to take advantage of improbably high interest rates on deposits. When the Icelandic bank crashed UK depositors were guaranteed 50K UKP per depositor under UK rules. But the UK government decided to let no UK depositor suffer any loss, however greedy and imprudent they had been, so refunded all retail UK depositors all their money.

     

    They then turned round to Iceland and said 'hey! that was your bank. We'd like to get back the extra money we paid out to UK depositors that wasn't covered by the standard UK terms.'

     

    When the Icelandic government (itself in meltdown mode by then) said 'what were you Brits doing paying out more than the statutory amount of 50K?' the Brits went barmy. Gordon Brown invoked terrorist legislation against the Icelandic government (!) to freeze its assets within UK control.

     

    Since then, there have been two referenda with the results outlined above.

     

    As far as I know there was no good reason for the UK to exceed the statutory compensation in the first place. Pretty much everyone knew that if the main banks were offering 5% while one outlier was offering 8 or 9% then something was wrong.
    10 Apr 2011, 12:30 PM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    The Icesave accounts offered the highest yield on the market. Is it you opinion that depositors should not carry the risk involved by chasing higher yields?
    10 Apr 2011, 12:31 PM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    I meant: "which is understandable"
    10 Apr 2011, 12:35 PM Reply Like
  • Michael Clark
    , contributor
    Comments (9744) | Send Message
     
    That's a different issue. I agree with you that this is NOT fair. I think both sides need to face reality. No free houses for anyone. No free bailouts for the large or the small.

     

    But to try to blame the buyers of the overpriced homes and the underpriced loans misses the point. It is not a crime to ask a bank for money you don't deserve and aren't qualified to receive. It is the banks' job to say NO. Why did the bank say yes? In the 1980's Savings and Loan Crisis the bankers in Texas had a little friendly sayiing they used with one another: 'A rolling loan gathers no loss.'

     

    From my book:

     

    Stephen Pizzo, author of The Looting of America’s Savings and Loans, writes:

     

    Back in the early 1980s when Ronald Reagan deregulated the savings and loan industry, Texas became the nation's biggest cesspool of S&L crookery. At the core of their thieving strategy was a little trick they described thusly: 'A rolling loan gathers no loss.'
    These wily Texas coyotes had figured out a win/win situation. S&L operators could help their buddies "borrow" money from their S&Ls, not pay it back, and still allow the S&L to book loan fees and other profits, upon which the S&L executives based their salaries and bonuses.
    Ah, you say, but wouldn't bank regulators notice that the loans were in default? No. Because each time a loan came due the S&L would "roll it over" -- renew it -- adding all interest due into the new loan and booking it as income. The loans got bigger and bigger, and never got paid off. The bankers got rich, the borrowers got rich, American taxpayers got the bill. A classic Texas "win/win" business deal."

     

    "Of the 56 banks that failed in the U.S. between 1959 and 1971, 34 had passed their most recent examination in a 'no-problem' category, and 17 of the 34 had been given an 'excellent' rating." (Rep. St Germain, qtd in Pizzo p. 475)
    "Buttoned-down appraisers, plugging along in boring jobs... learned that by simply raising their opinion of a property's value to match a borrower's needs or desires, they could raise their own standard of living as well - and the higher the opinion, the bigger the paycheck."

     

    This was THE SAME gameplan for the 1998-2008 Great Bank Heist.

     

    You should not have to pay for the mistakes of careless people who bought overpriced houses. I agree. You should also not have to pay for criminal people who sold bad loans expecting to be bailed out by the government, in much the same way the bankers were bailed out in the 1980's banking thievery.

     

    This was all staged. The bankers knew exactly what they were doing.
    10 Apr 2011, 12:35 PM Reply Like
  • kmi
    , contributor
    Comments (4313) | Send Message
     
    Linked article only has the following for cl;arity:

     

    "The debt was incurred when Britain and the Netherlands compensated their nationals who lost savings in online "Icesave" accounts owned by Landsbanki, one of three overextended Icelandic banks that collapsed in late 2008, triggering an economic meltdown in the country of 320,000 people... voters rejected the idea that taxpayers should foot the bill for what they see as bankers' irresponsibility."

     

    Are you certain the Icelandic banks were in fact bailed out? Or is this a situation where Britain/Netherlands is attempting to get the Icelandic people to pay for the failure/insolvency of their banks?
    10 Apr 2011, 12:38 PM Reply Like
  • swissfrank
    , contributor
    Comments (516) | Send Message
     
    Econdoc, see my comment above.

     

    Standard compensation for any UK depositor was 50K UKP (per depositor per bank) covering any bank doing business on UK soil. That amount is not the dispute.

     

    The dispute is the VOLUNTARY compensation made by the UK government over and above the 50K ceiling. Why did the government do it? Answer: go back to Northern Rock the previous year, the first UK bank run for generations. Again, the government could have stuck at 50K per person but some had much more in there. The government reimbursed all depositors (at the expense of ordinary prudent taxpayers) and then felt they had to do the same thing again when the Icelandic bank folded.

     

    The only difference: the UK obviously had no one to turn to so as to get the money back from Northern Rock (it had been nationalised) whereas the government thought it could put the frighteners on little Iceland to pay back money the 'above ceiling' amounts that were agreed by the UK without first checking with Iceland that repayment would be forthcoming.

     

    There were greedy and reckless UK depositors, a scared, incompetent UK government and the poor old taxpayer who wasn't consulted.

     

    If he had been he would have surely said to comp[ensate up to but not beyond the 50K ceiling.
    10 Apr 2011, 12:41 PM Reply Like
  • Tack
    , contributor
    Comments (14419) | Send Message
     
    kcr:

     

    Here's why.

     

    In the historical times, voting was limited to the educated and property holders, so, almost by definition, those voting had knowledge of and/or a stake in that on which a vote was being taken. In the modern context of "democracy" there's little other requirement for voting, other than being breathing.

     

    Consequently, societal-wide plebiscites --especially on more complex issues-- are nothing more than a populist appeal to mob rule by a vast contingent of people mostly uneducated about and/or having no stake in the outcome. Neither government in the form of a "democracy" nor a "republic" contemplated such a course of action for self government.
    10 Apr 2011, 12:45 PM Reply Like
  • Econdoc
    , contributor
    Comments (2944) | Send Message
     
    thanks swiss

     

    there are really three sets of questions here

     

    1. what was the explicit guarantee on these Icesave accounts -
    2. did Iceland regulate these banks? who had the oversight?
    3. who in Iceland got paid and how much?

     

    whether the investors were greedy or reckless is irrelevant - even greedy and reckless people are covered by guarantees

     

    who pays is based on where the banks were being regulated - who had the oversight - if you a foreign depositor in a US bank I believe you are still covered under FDIC - that's a good principle.

     

    Iceland should simply pay up to the amount it would have paid had they all been locals - anything over that is excessive. They should not pay for stupid promises made by the UK Government - but they should pay for those they made either explicit or implicit.

     

    E
    10 Apr 2011, 12:59 PM Reply Like
  • Screwloose
    , contributor
    Comments (389) | Send Message
     
    The UK FSCS limit, at the time, was GBP35,000 to private depositors only - all the hundreds of millions of commercial and municipal deposits were lost in their entirety. The few private deposits in excess of that limit were covered to maintain public confidence - which was starting to wear a little thin at the time.

     

    The only compensation agreement that the Icelandic Government had signed up to was the EU-wide basic EUR 20K per private depositor. Any additional amounts paid out under other local schemes were not its liability and are not - and have never been - at issue.

     

    Like the FDIC; the Icelandic Government had not provided for or covered its liability and was left unable to pay out when the banks collapsed. Despite being implicitly dubbed a "terrorist" by the inept Gordon Brown, the Icelandic President actually thanked him publicly for covering their depositors' liability - and agreed to reimburse the two governments for the Icelanders' contracted portion.

     

    The only thing left was to negotiate the terms of that reimbursement. The initial deal collapsed even before it went to a plebiscite and was renegotiated into the current agreement that has also now been rejected.

     

    It was never about bailing out bank debts: that's not Iceland, that's Ireland - and they should default - the only question is whether the Icelandic people wish to stand behind their governments' freely entered-into contractual agreement to compensate private depositors.
    10 Apr 2011, 01:21 PM Reply Like
  • smartwidowlady
    , contributor
    Comments (390) | Send Message
     
    Thank you for the explanation, sportgamma. The messages above seem to have gone off the actual topic of Iceland somewhat...
    10 Apr 2011, 01:29 PM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Because letting the US banking system fail is not an option.

     

    I have no more love for the banks than the average American, but I am aware that a collapse would not be good for my portfolio or economic prospects.

     

    The near collapse was bad enough. I don't need complete disintegration.
    10 Apr 2011, 04:39 PM Reply Like
  • balois
    , contributor
    Comments (167) | Send Message
     
    Tack writes: "...societal-wide plebiscites --especially on more complex issues-- are nothing more than a populist appeal to mob rule by a vast contingent of people mostly uneducated about and/or having no stake in the outcome. Neither government in the form of a "democracy" nor a "republic" contemplated such a course of action for self government..."

     

    From Wiki:

     

    "...A referendum (also known as a plebiscite or a ballot question) is a direct vote in which an entire electorate is asked to either accept or reject a particular proposal.

     

    In the United States, the term "referendum" typically refers to a popular vote originated by petition to overturn legislation already passed at the state or local levels By contrast, "initiatives" and "legislative referrals" consist of newly drafted legislation submitted directly to a popular vote as an alternative to adoption by a legislature. Collectively, referendums and initiatives in the United States are commonly referred to as ballot measures, initiatives, or propositions..."

     

    I guess the English also considered those in their colonies who fought for an independent country as a mostly uneducated mob, plebs, plebeians, i.e. people of a lower order, when conducting their kind of armed societal wide plebiscite?

     

    I find this discussion about Iceland intriguing. What elitist arrogance shines through some of the comments. Why not clean our own house, care about the monstrous mess at home and let the Icelanders decide for themselves. 310 000 of them, highly educated, with a literacy rate the US, UK and most of Europe could only dream about and in the shits because of all the good advice they followed from our beloved investment bankers in the first place.

     

    Have a good evening
    10 Apr 2011, 06:43 PM Reply Like
  • Tack
    , contributor
    Comments (14419) | Send Message
     
    balois:

     

    I was responding to the suggestion that plebiscites, referenda, whatever, should be employed wholesale in the U.S. The U.S. was formed as a republic. Look it up.

     

    Neither the British nor U.S. (before or after independence) allowed the "masses' to vote, either. One had to be possessed of literacy, and for a long period, own property.

     

    But, of course, it's fine for everybody to vote, now. Heck, it's even argued that illegal aliens should have voting rights. Having standards, or even observance of the law, is no longer in vogue. That would be "elitist."
    10 Apr 2011, 06:55 PM Reply Like
  • kcr357
    , contributor
    Comments (567) | Send Message
     
    So you would promote gov. doing not what is reflected by voters, but what the gov. deems the best decision?
    10 Apr 2011, 10:54 PM Reply Like
  • davidbdc
    , contributor
    Comments (3184) | Send Message
     
    The people are right!

     

    Why should taxpayers pay for the mistakes of bankers?

     

    Let the bondholders and shareholders pay. They have the ownership when times are good. Let them take ownership when times are bad.

     

    If the British and Dutch governments were so stupid as to return all their citizens' money thats too bad. Their citizens were putting money into Iceland to chase ridiculous returns (I believe about 11-12%) when their domestic banks were offering 4-5%. They took the risks. When times were good they took the rewards. Then it changed. And they lost.

     

    What is sad is that in the USA it will be our children and grandchildren that will be paying not only for the stupidity of the bankers, but the stupidity and cowardice of the politicians. Unlike Iceland, our president didn't stand up for the people.

     

    And if there needs to be chaos so be it. Maybe in the midst of all the coming chaos in Iceland a few of the responsible bankers will be found at the end of a rope.
    10 Apr 2011, 10:42 AM Reply Like
  • swissfrank
    , contributor
    Comments (516) | Send Message
     
    I think you're absolutely right (see my two comments above).
    10 Apr 2011, 12:43 PM Reply Like
  • wyostocks
    , contributor
    Comments (9051) | Send Message
     
    David----"And if there needs to be chaos so be it."

     

    I could not agree with you more. Without some "chaos" we'll never get anything changed. However, watch all the MSM bring on the sob stories about the evil people who want some sanity brought back.
    10 Apr 2011, 10:47 AM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2606) | Send Message
     
    I am not being facetious.

     

    But as the saying goes, 'All Investments Involve Risks', and the common sense rule is 'Buyers Beware'.

     

    I wouldn't blame those depositors for being greedy after a juicy rate at IceSave. However, they should have been cognizant of the risk reward effect.

     

    The Netherlands and the UK governments took the unusual step to use taxpayers money to reimburse savers that bet on a foreign enterprise . Fair game says that private industry default is the price to pay.

     

    The GOP said it right, 'the Era of Bailout is now over'.
    10 Apr 2011, 10:51 AM Reply Like
  • css1971
    , contributor
    Comments (870) | Send Message
     
    Actually it's EU law. And Iceland does have a depositor guarantee fund. However I'm not clear if it only covers domestic depositors or all depositors.
    10 Apr 2011, 12:32 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2606) | Send Message
     
    Not a lawyer myself but would like to add my 2 cents on the pending UK/Netherlands law suit.

     

    The Judiciary usually rules based on the application of the relevant Law and its precedents, and seldom if ever on grounds of compassion or even 'common sense'.

     

    I believe their case is weak especially in a cross-border situation as this.
    10 Apr 2011, 11:02 AM Reply Like
  • nyuszika45
    , contributor
    Comments (633) | Send Message
     
    Only the hubris of those who think they are the "ruling class" would think that a government of ALL the people should cover the imprudence of a small minority who happen to be "friends" or have sufficient money to buy the government they want to the result of depriving the vast majority of their livelihood and economic welfare. Sound like anyplace familiar to anyone?
    The concept of "too big to fail" is so fallacious it does not deserve the respect of proper words.
    10 Apr 2011, 11:14 AM Reply Like
  • jferreiro
    , contributor
    Comments (86) | Send Message
     
    It seems that Iceland is the only country doing it right. The bankers should take the haircuts not the taxpayers. The citizens of the US need to do the same.
    10 Apr 2011, 11:36 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Have you been to Iceland? I have visited several times and my Father learned the language, which is exceptionally difficult.

     

    The reality is that Iceland needs to resolve this issue in such a way as to facilitate their entry into the European Union.

     

    A lot of you act like thirteen year olds. Chaos is not good.
    10 Apr 2011, 04:53 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2606) | Send Message
     
    As an after thought I would like to add one more of my 2 cents.

     

    Hypothetically let us say that the UK/Netherlands governments lost its case before the International Court.

     

    The question then becomes who is going to 'eat' the $5B loss? Would it be the taxpayers or the savers in question?

     

    The next question that comes to my mind is if the UK/Netherlands taxpayers have a cause for grief? Should there be a national referendum in both countries for the people to decide, as with in Iceland?
    10 Apr 2011, 11:37 AM Reply Like
  • Michael Clark
    , contributor
    Comments (9744) | Send Message
     
    Let the Old Money Bondholders eat the loss -- or take a haircut. Hell, the shaved head is all the rage now. Look at Mister Paulson. He is a model for the Old Money in the next wave I fear. A massive haircut; and stealing like they've never stole before.... Buyer beware. In fact, everyone beware!
    10 Apr 2011, 11:42 AM Reply Like
  • thotdoc
    , contributor
    Comments (1853) | Send Message
     
    Knight-With all due respect, the fact that you don't automatically see that the investors/risk takers should lose the money, is the extent your thinking is embedded in the prevailing narrative. An alternative narrative is: You take chances when you invest. When you lose money, that's part of investment.

     

    No one made good my losses in my 401-K or private account. If you lost money in the crash, did anyone send you a check?
    10 Apr 2011, 12:11 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2606) | Send Message
     
    Michael

     

    I understand and appreciate your concern.

     

    This news from a towering world-class academic on banking reform that just came up yesterday (April 10) might interest you, yourself a distinguished academic as well, at uk.reuters.com/article...

     

    Regards,
    TK
    10 Apr 2011, 12:21 PM Reply Like
  • Michael Clark
    , contributor
    Comments (9744) | Send Message
     
    Thank you, TK. Interesting read. I think the era of bankers running the world is ending. But it will not end easily or without a fight.
    10 Apr 2011, 12:40 PM Reply Like
  • kmi
    , contributor
    Comments (4313) | Send Message
     
    Knight - it appears the effective burden is being shared by the taxpayers of Britain and Netherlands as the government seems to have paid out the money to the 'savers' already.
    10 Apr 2011, 12:46 PM Reply Like
  • JohnPY
    , contributor
    Comments (7) | Send Message
     
    On behalf of the Netherlands I hereby offer my apologies to the People of Iceland. I'm very ashamed of the recent actions of my government in general and my finance minister in particular. Bank ceo's, boards, managers and employees; Can anyone explain to me what their responsabilities are? Normal people in normal bussinesses get broke or sacked.
    10 Apr 2011, 12:26 PM Reply Like
  • Michael Clark
    , contributor
    Comments (9744) | Send Message
     
    Thank you, John PY. Many of us over here (over the Great Water) have the same questions. CEO's generally tell other people what to do, receive very impressive salaries and fringe benefits, and decide how to best maximize company profits in order to cash in stock options and award themselves bonuses at the end of the year. When things go bad, and companies break, then they pull in their IOUs from Washington-- and get rewarded even more for losing billions of dollars through a lack of caution. Caution and higher bonuses rarely go hand-in-hand.
    10 Apr 2011, 12:50 PM Reply Like
  • bob adamson
    , contributor
    Comments (4559) | Send Message
     
    This comment ends with a selection of international reports on the latest Icelandic rejection of the terms for settlement with the UK and the Netherlands.

     

    First, however, we should remember how really small Iceland is in population and economic terms (see the following for details)

     

    www.cia.gov/library/pu...

     

    Second, we should remember the ‘Cod Wars’ of the 1950s between the UK and Iceland over North Sea fishing. Arguably residual bad feeling from this presupposes the UK to play hardball with Iceland now. The Netherlands is currently governed by a hard-line right of centre government which is generally ill-disposed to see anyone evade their contractual obligations.

     

    Third, the irony and tragedy is that throughout their history Icelanders have been very reticent to take risks or change accustomed ways the implied thought being “Sure we might be better off if we try to change but, on the other hand, we’re screwed if we fail”. Given the meager resources and harsh circumstances faced over the centuries, one can see why such caution existed. Thus the banking bubble episode during the years prior to 2007 was a great anomaly and Icelanders were prepared neither for the manic pre 2007 years or, given that unaccustomed mania, for the depressive collapse.

     

    Icelanders are clearly hunkering down for a long drawn out spate of tough times (in many ways a sad return to the historic norm).

     

    www.bbc.co.uk/news/bus...

     

    www.dutchnews.nl/news/...

     

    www.france24.com/en/20...

     

    www.vancouversun.com/b...
    10 Apr 2011, 01:25 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    As has been said, there's nothing heroic about the scam the Icelanders are trying to get away with. They took in foreign deposits in guaranteed accounts which they (the country, not just the bankers) greatly profited from and now they want to abrogate the guarantee for foreign depositors. We'd never get away with this in the US, so why support the Icelanders in screwing over everyone else? Keep in mind that the Icelanders stripped Landsbanki of the Icelandic assets that were purchased with these foreign depositors funds and transferred them to a newly created government-owned bank. They left the existing bank with nothing but meaningless IOUs that the Icelanders have no intention of paying on.

     

    I say embargo Iceland and let them rot on their icy rock in the North Atlantic. They aren't an any sense a real self-sufficient sovereign and they lived high on the hog with largesse that came from others and the covenants made that allowed them to come by that largess they are now breaking of convenience.
    10 Apr 2011, 01:33 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    I should have added that even as the Icelanders are attempting to renege on past obligations, they're knocking at the IMF's door for more bailouts and largesse, the membership of which includes those they have already stiffed. If you wish to benefit from the flow of foreign capital flows into your country, then you must be willing to honor the terms of the agreements that come with those flows.
    10 Apr 2011, 01:50 PM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    Do I understnd you correctly that it was all a devious masterplan designed by the Icelandic public to rip of other nations? It that in deed is what you think, I´m sorry to inform you that the scam you refered to wasn´t really succesfull as the "great profits" that you talk about are there and that the Icelandic economy is not better off after the collapse.

     

    For you´re information, getting financing from deposits abroad was actually done after the rating agencies suggested it. Those same rating agencies gave those banks AAA-ratings just before the collapse. But I guess they were in on the scam, right?

     

    Splitting failed banks into new and old banks is not unheard of (WaMu, the Swedish bank crisis) and it actually prevented those assets transfered to the new enteties from becoming worthless. So, those who have claimes in the old bank are actually better off.

     

    The Icelanders do have intentions to pay its obligations and paybacks from the old bank will begin this year.
    10 Apr 2011, 01:55 PM Reply Like
  • Arnbjorn Ingimundarson, CFA
    , contributor
    Comments (192) | Send Message
     
    Your argument is based on emotions, not facts. By the same reasoning, did not the general public in the U.S. benefit from the real estate boom and should therefore be on the hook for Lehman Brothers' bonds? By virtue of having the world's reserve currency and the world's strongest military forces, the U.S. can get away with a lot of things that small countries can not.
    10 Apr 2011, 02:45 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    No, rather your argument is based on emotion and fiction. As I'm sure you know these aren't bondholders, these are guaranteed depositors. Your question is when a FDIC insured bank in the US is closed, should we be allowed to say to foreign depositors, "sorrow you are screwed, we won't cover foreign depositors, but we will keep the assets we bought with your funds."
    10 Apr 2011, 04:45 PM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    Again, you are plain wrong. Iceland did not keep any assets that the bank bought and Iceland has never stated that it will not honor its obligations.
    10 Apr 2011, 05:13 PM Reply Like
  • Arnbjorn Ingimundarson, CFA
    , contributor
    Comments (192) | Send Message
     
    Foreign depositors will be paid from the deposit insurance fund as well as from the assets of the failed banks, once liquidated. The uncertainty concerns what the shortfall will be. If you think there has been some decision to the effect that foreign depositors will get nothing from these banks, you simply are not very familiar with this case. The dispute is whether the Icelandic government will guarantee payouts beyond what the deposit insurance fund and bank assets can handle. If a deposit insurance fund equals an unlimited government guarantee then there would be no point in setting up such a fund -- the government would simply be on the hook for an unlimited amount.
    10 Apr 2011, 05:26 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    You've repeated the same fiction, and it's easily shown to be false. The assets were stripped out of Landsbanki and placed in a new bank. What was left in Landsbanki were primarily a few foreign assets and the Icesave account liabilities.

     

    "Two days later, on 9 October, the Icelandic assets and liabilities of Landsbanki were transferred to a new government-owned bank, Nýi Landsbanki.[29] As Landsbanki had been acquiring assets in Iceland with foreign loans and deposits, the assets of Nýi Landsbanki exceeded its liabilities (domestic deposits and government equity capital) by 558.1 billion krónur (€3.87bn, £3.06bn),[30] even after Nýi Landsbanki had made provisions for over half its loans to customers. Icesave deposits, along with all foreign borrowings, remained in the old Landsbanki, which was left with 1743 billion krónur (€12.1bn, £9.56bn) in assets to face up to 3197 billion krónur of liabilities (€22.2bn, £17.5bn).[31]

     

    en.wikipedia.org/wiki/...

     

    The details of the asset stripping are documented here:
    www.fme.is/lisalib/get...
    11 Apr 2011, 03:20 AM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    I'm quite familiar with this case, thank you, and you're misrepresenting it. The foreign depositors have already been paid by their governments. The UK and Netherlands are asking to be repaid the minimum amount of the Euro 20K guarantee that is required by EU law. Iceland is refusing to do so. What's in the fund and the Landsbanki assets won't cover this amount - if it did there would be no reason for the referendum. There is no request for an unlimited amount as you claim. Also in dispute is Iceland's discrimination against creditors based on nationality, as this is forbidden by EU law. Iceland could have handled this equitably and ethically by treating all depositors equally, but instead they showed themselves to be little more than a sovereign kleptocracy defrauding foreign depositors.
    11 Apr 2011, 03:38 AM Reply Like
  • Arnbjorn Ingimundarson, CFA
    , contributor
    Comments (192) | Send Message
     
    The law requires a deposit fund to be in place to cover the 20K guarantee. Such a fund was in place, but it was obviously inadequate to cover a collapse of this magnitude. While it is true that the insurance fund was poorly funded, the same is true of the FDIC and this case exposes the illusion that such funds can backstop a real financial collapse.

     

    When you say "Iceland is refusing to do so" you are still assuming that the country itself has unlimited liability (up to the 20K per account). The banks that failed were private institutions and the government was responsible for establishing a deposit insurance fund, which it did. The obligation does not go further than the deposit insurance fund.

     

    The discrimination you talk about was not based on nationality, but location. Foreign depositors in Iceland did not lose their money and Icelandic depositors abroad did not get preferential treatment. The ethical and equitable treatment sounds good, but the priority of the government was to prevent total chaos in Iceland. What government would leave its country without a single functioning bank? It remains to be seen how much will not be covered by Landsbanki's assets (current estimates show it may be a relatively small amount), but I think most Icelanders voted against the referendum on principle.

     

    The big lesson from this is that Too Big to Fail becomes Too Big to Save. If a bank wants to enjoy any sort of government guarantee, it should be a limited purpose bank and be subject to stringent regulation.
    11 Apr 2011, 09:21 AM Reply Like
  • wyostocks
    , contributor
    Comments (9051) | Send Message
     
    Other lessons are be more careful where you invest your money and high returns carry high risks.
    11 Apr 2011, 09:59 AM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    I guess you´ve already made up your mind on the subject so there probably no point in trying to reason with you.

     

    However as the presedent of Iceland just pointed out, an estimated amount of up to $9billion will be paid out of the estate to the Dutch and British government, which by far covers the 20k gurantee.

     

    www.youtube.com/watch?...
    11 Apr 2011, 11:54 AM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    Sportgamma, then ask yourself, why did the Icelandic authorities negotiate a settlement that had Iceland repaying the amount through 2046 with a 3.3% interest rate to the UK and 3% to the Netherlands? You need to let them in on this secret that there's sufficient assets left in Landsbanki and they just need to sell them off. The fact is that anyone that's taken a serious look at this knows that what assets remain in Landsbanki are far from sufficient to cover the Euro 20k guarantee, hence the negotiated settlement that the Icelandic public rejected.

     

    And spare me the ravings of the senile and craven old fool Grimsson. He's out of touch with both reality and the rest of the Icelandic government.
    12 Apr 2011, 12:00 AM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    Actually the law leaves it up to Iceland to determine the means of funding. The law requires the Euro 20k guarantee. What point would there be to the guarantee if any country were allowed to simply abrogate the contract by pointing to their fund and saying, "sorry but we failed to adequately fund the guarantee, you are screwed?" Obviously such a situation cannot be allowed and Iceland is alone in trying to claim that this is a means to void the guarantee. So yes, the obligation does indeed go further than what any country chooses to set aside in reserves, and the shortfall is the responsibility of the country involved, which in this case is Iceland.
    12 Apr 2011, 12:13 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    The law is not the only things that matters. Laws can be unreasonable.

     

    Anyone who narrowly focuses on the law such as yourself will end up advocating unjust positions.
    12 Apr 2011, 08:20 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    The issue which you keep dodging whether the Icelandic people have a moral responsibility to pay

     

    Legal is not the same as moral.

     

    Segregation by race was legal and the law of the land in the Deep South of America. It was nonetheless wrong.

     

    Indeed, the West eliminated debtor laws a long ago and this smacks of a debtor law.
    12 Apr 2011, 08:23 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    The Icelandic people rejected paying because it is too burdensome. They may be wrong, but there is no moral obligation to pay any bill regardless of the amount.

     

    Indeed, the law implicitly recognizes that fact because we have bankruptcy as an option. Debtor's prison was abolished a long time ago.

     

    Why don't disclose your nationality and particular interests in this case?

     

    I am American and have no economic interests in this case. You on the other hand appear to have a vested interest.

     

    Let me add that the Brits and the Dutch have made themselves look vindicative in this case and no amount of hiding Behind the Law is going to change it.
    12 Apr 2011, 08:56 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    Cincinnatus,

     

    You're acting like an ass. Sometimes laws do have to abrogated and most countries have violated at some time and place most international laws and treaties. Some of those violations are unjustified and some were probably justified.

     

    Answer the question. Are laws to be always honored regardless of consequences? I doubt you seriously believe that.
    12 Apr 2011, 09:00 AM Reply Like
  • American in Paris
    , contributor
    Comments (5504) | Send Message
     
    The people are ultimately sovereign, not the State. The people have the right to reject unreasonablely burdensome treaties passed by their government, elected or not.

     

    I hope you are not a Brit. Because the Brits have constantly acted like bullies to Iceland.
    12 Apr 2011, 09:03 AM Reply Like
  • Tack
    , contributor
    Comments (14419) | Send Message
     
    AIP:

     

    Excuse me, but your argument is intellectually vacuous.

     

    You either have a nation (world) of laws or a nation (world) of men. If the laws can be ignored at one's choosing, based on some abstract idea about what is "fair," then, there is no law. And, the inability to depend on law, especially contract law, makes investment stunted, or even impossible. Ultimately, the capricious taking of property that results, if allowed to beome the normative behavior, leads to violence and war.

     

    Legal systems provide for legal means to pass, amend, rescind and enforce laws and for courts to decide what's legal. When people are allowed to make self-serving determinations that the law isn't "fair" and shouldn't be observed, then, you're on the slippery slope to chaos.
    12 Apr 2011, 09:23 AM Reply Like
  • Arnbjorn Ingimundarson, CFA
    , contributor
    Comments (192) | Send Message
     
    I have seen several legal opinions stating that the obligation is limited to setting up a deposit insurance fund and none that has argued otherwise by referencing the law. Even a person who was involved in writing the EU directive concerning deposit insurance has this opinion. Therefore, you are wrong in saying that "Iceland" is alone in saying this.

     

    Saying that "such a situation cannot be allowed" is meaningless legally and morally. Many people would say that a situation should not be allowed were governments are responsible for transactions made between two private parties, as in the case of private borrowers and lenders.
    12 Apr 2011, 09:54 AM Reply Like
  • Arnbjorn Ingimundarson, CFA
    , contributor
    Comments (192) | Send Message
     
    As far as the legal element goes, article 3 of Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes states that:

     

    "...- the system must not consist of a guarantee granted to a credit institution by a Member State itself or by any of its local or regional authorities,...".

     

    It seems that not only is a blanket government guarantee not required, it is not even allowed.
    12 Apr 2011, 10:24 AM Reply Like
  • kmi
    , contributor
    Comments (4313) | Send Message
     
    Everyone gets a haircut sometimes, somehow, somewhere, for some reason. It's a shame, but it happens.
    12 Apr 2011, 01:56 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    It's a legal and ethical issue, and you'll find that I've dodged neither if you've been reading along. Is it legal and ethical to strip a bank of it's assets, make Icelandic citizens whole, all the while discriminating against foreign nationals and leave them holding the bag?

     

    The first thing that should have been done is put the bank into receivership, and subsequently pay out equally to all depositors to the extent of the assets available and the funds in the insurance fund. Had the people of Iceland done that they would have had some grounds to abrogate the 20k guarantee, as they would have at least been treating all depositors equally and without respect to nationality.
    12 Apr 2011, 04:35 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    Actually for calling me an ass, you're acting like an ass. I'm challenging the legality and ethics of leaving foreign depositors holding the bag and that's clearly got you in a tizzy.

     

    You want to ignore what is legal and ethical, which is to say that you're not in favor of a civil society, as if you give up the former you destroy the latter.
    12 Apr 2011, 04:40 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    Oh yes, the emotional argument that the Icelandic people are the victims. They're a bunch of country bumpkins that had no idea why all that foreign capital flowed into their country. It was all a plot by those evil depositors in the Netherlands and the UK.
    12 Apr 2011, 04:49 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    AIP, why is my nationality an issue? Would you hate me based on my nationality? What about Arne and Sportgamma? Based on their names I'd say there's a high probability they're Icelandic. So maybe you should question their particular interests in this case? Or maybe you should just sit this one out, because arguing based on the merits of the issues is clearly out of your league.
    12 Apr 2011, 04:55 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    This is about legality and ethics, and saying it's not is devoid of meaning.

     

    This isn't an issue of transactions between private parties. This is an issue of three parties, the depositors, the bank, and the government responsible for determining the means and oversight of insuring deposits, and seeing to it that all depositors are treated equally under the law.
    12 Apr 2011, 05:38 PM Reply Like
  • Cincinnatus
    , contributor
    Comments (4166) | Send Message
     
    That's the interpretation of the Icelandic government after the fact. That's not the interpretation of the EU, which is among the reasons this is heading to court.

     

    "The Member States of the European Union contest the interpretation of the Icelandic government, and consider that a sovereign "guarantee of last resort", similar to the role of central banks as lenders of last resort, is the only way of "ensuring the compensation or protection of depositors" as required by the Directive. The ruling of the European Court of Justice in Peter Paul and Others, the only case to have considered Directive 94/19/EC, begins: "If the compensation of depositors […] is ensured, …". The ECJ then went on to uphold the immunity of the German authorities from civil liability for alleged failings in banking supervision (as per Recital 24) given that the depositors had been compensated up to the minimum set by the Directive."

     

    Note the key phrase there is "given that the depositors had been compensated up to the minimum set by the Directive."

     

    Now if your claim is true, that compensation is limited to the 1% of deposits in the insurance fund, then why promote a farce that Euro 20k is guaranteed and that Iceland was in compliance with applicable EU law?

     

    An irony is that Icesave was still claiming the Euro 20k guarantee would be honored as late as Spring 2008, and the Icelandic authorities were participating in the ruse by implying that Iceland was teetering due to the work of international hedge funds and not their own internal house of cards.
    www.thisismoney.co.uk/...
    12 Apr 2011, 06:10 PM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    By using the term "asset stripping" you imply that the assets were in some way nationalized or stolen. In the FME document you refer to it also says:
    "The FME appoints recognized appraisers to evaluate the true worth of assets and liabilities allocated to New Landsbanki Íslands hf. according to this decision. Following this valuation, a settlement shall be made, whereby New Landsbanki Íslands hf. shall pay Landsbanki Íslands hf. the difference between the worth of assets and liabilities, with reference to the time frame of the transfer according to par. 5."

     

    So, the old bank has a claim in the net assets of the new bank. The emergency law was implemented out of necessity, without it the worth of those assets would have been nil.

     

    The government ownership comes from an equity injection.
    13 Apr 2011, 08:29 AM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    The answer according to economist Micheal Hudson:
    "Opponents of the Icesave agreement explained that they want to appeal to the EU rules regarding bank bail-outs and the Ecofin understanding that any agreement would preserve Iceland’s economic viability. That is why Iceland’s parliament, the Althing, asked last autumn for an impartial court to adjudicate the issue. Britain and the Netherlands turned down the request. They have been willing to negotiate over the timing of payments by Iceland – with interest mounting up while the clock is ticking – but not the overall amount.
    Iceland’s government was willing to give in as the price that seemed necessary to obtain EU membership, but recent polls show that 70 per cent of voters have now lost interest in joining. This is the same proportion that is estimated to oppose approving the Althing’s agreement to give Britain and the Netherlands what they are demanding."

     

    Since you´ve taken a serious look into it, mabey you could enlighten me on how you estimate the value of the prime asset in the estate?

     

    Also, ask yourself why did the British and the Dutch lower their demands to such an extent between referendum I and II?
    13 Apr 2011, 08:57 AM Reply Like
  • Sportgamma
    , contributor
    Comments (82) | Send Message
     
    I´m Icelandic and I live in Iceland.
    13 Apr 2011, 08:58 AM Reply Like
  • nyuszika45
    , contributor
    Comments (633) | Send Message
     
    Don't they still have the debtors' prison in Switzerland?
    13 Apr 2011, 07:55 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (2606) | Send Message
     
    Allow one more after thought.

     

    If the Netherlands/UK governments lost its case and failed to recoup the $5B, taxpayers may have a cause for grievance. In lawyer speak, it could amount to a breach of fiduciary responsibility, taking taxpayers money without consent to benefit those savers to profit.

     

    If one is talking about a deposit of over $1M, the 10% interest earned before IceSave collapse could be significant, given nominal interest rate is at or near zero.
    10 Apr 2011, 04:35 PM Reply Like
  • AnnaH
    , contributor
    Comments (15) | Send Message
     
    What is the point of an insurance fund if it has to be guaranteed by the government? Icelandic taxpayers were voting against footing the bill for a private company, especially when the legality of those claims is highly contested. That seems like a reasonable demand. If the EU law is so clear cut and it is so obvious that Icelandic taxpayers should cover all deposits in the event of a shortfall why haven't the British and the Dutch sued a long time ago?

     

    Also, saying that only having 1% of guaranteed deposits in the fund is unreasonable - do you really expect to have an insurance fund lying around with money to cover all guaranteed bank deposits of all banks of that country? What exactly does the EU demand with regards to these insurance funds? Has it ever been stated that Iceland wasn't in compliance as far as the fund goes? The US only keeps about 1% in its insurance fund and went as low as about 0.25% of covered deposits during the recent crisis. This just goes to show that deposit insurance (even with government guarantees) is rather useless during a systemic collapse of a country's banking system. Government guarantees only provide a false sense of security as someone is always footing the bill. Having it spread out across taxpayers who had nothing to do with the failed companies is no more fair in my opinion than just having equity holders, bond holders, depositors and the insurance fund take the hit. They had already agreed to assume the risk by dealing with the institution.

     

    If anything this matter should make people realize how ridiculous the concept of completely risk-free deposits is from an economic standpoint. What do people expect, especially when chasing exceptionally high interest rates? The farther away we get from matching risk and reward the more screwed up our financial system will become and the more crises we'll have.
    15 Apr 2011, 11:18 AM Reply Like
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