Iceland lets banks fail, jails bankers: Economy booms

Oh... well... shucks...

I gotta' tell you.... I think I would have been a fan of locking them up even if it didn't improve the economy.

Heck... I would have settled for the US not buying into their scam.
 
libertarianMoney said:
Oh... well... shucks...

I gotta' tell you.... I think I would have been a fan of locking them up even if it didn't improve the economy.

Heck... I would have settled for the US not buying into their scam.
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"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." -- Henry Ford
 
I think the issue is Iceland had to endure an economic disaster in the short term. Probably about the same would happen if Ron Paul was president.

This kind of short term pain is politically difficult though, so instead we get people who spread the misery out over decades.
 
VIDEODROME said:
I think the issue is Iceland had to endure an economic disaster in the short term. Probably about the same would happen if Ron Paul was president.

This kind of short term pain is politically difficult though, so instead we get people who spread the misery out over decades.
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And each new generation gets to learn reality, all over again, from scratch. :p Is this a great system, or what? :rolleyes:
 
You know, it's just amazing how many healthier the human race has been since people stopped buying into the conventional wisdom and realized that having disease-ridden leaches suck your vital fluids out of you doesn't actually do you a damned bit of good.

Now if we could only do for the banking industry what we have done for the medical industry, and salt the leaches.
 
Their banking system was 14 times the size of their national GDP before the crisis. Three of their banks were allowed to fail but Britain helped bail out their depositors in one of them which cost UK taxpayers $7 billion (the Greeks are asking for $6 billion to bail out their current situation). That money has since been recovered. Financial regulations were highly tightened including stringent capital controls (much tighter than anything the US has done since the crisis) but their PM cautions they have still not done enough to prevent a similar event in the future. They also decided NOT to join the Euro so they could retain control over their own financial system.

http://www.telegraph.co.uk/finance/...ancial-system-is-still-dangerous-says-PM.html

The Prime Minister of Iceland has warned that the world’s financial regulators have not yet fixed the system that allowed the credit crunch and imperilled his country’s economy.

Speaking as Iceland unveiled plans to escape from the capital controls that have hobbled its currency since 2008, Sigmundur Gunnlaugsson said his team was in “close co-operation” with the European authorities as they work to prevent further financial disasters.

“It seems worrying to me how little it has changed since the financial crisis,” said Mr Gunnlaugsson. “I would like to see a rethink about how we approach this issue, which means that we may have to accept that the avenues that have been built into the system where finances rush from one place to another may not be the best or the safest way to run a financial system.”

Mr Gunnlaugsson, who became Prime Minister in 2013, said reaction last week to the eventual end of capital controls has been “surprisingly positive”.
Iceland, with a population of just under 330,000, allowed its banking sector to balloon to 14 times the country’s GDP before the financial crisis. To prevent an exodus of capital when the banks imploded, the country imposed controls on kronur held offshore, leaving creditors in the banks locked out of their money and residents weighed down by 18pc inflation.

The country has since rebounded, with budget cuts combined with growth in tourism and fisheries set to send the economy above its pre-crisis level of output, according to a recent report from the International Monetary Fund.

Creditors in the biggest three banks that were allowed to fail during the crisis – Glitnir, Landsbanki and Kaupthing – have appeared to support the plans to charge the banks a “stability contribution” before they can pay their debts and wind down.

Dozens of hedge funds including Davidson Kempner, Taconic and York snapped up the majority of the creditor claims in the banks at heavily reduced prices in the years following the crash.

In Britain, savers were compensated by the UK Government following the collapse of the Landsbanki offshoot Icesave, at a cost of £4.5bn. The Government has since recovered most of these funds.

The estates of the banks must have an agreement in place with the Icelandic authorities by the end of the year or face a 39pc stability tax on all their remaining assets. These deals will help unlock 900bn of the 1,200bn kronur (£5.8bn) currently frozen by the capital controls.
Mr Gunnlaugsson hopes that allowing freer movement of the kronur will attract more foreign investment in Iceland.
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Last edited:
daviddee said:
The Iceland "success story" is an illusion.

If anyone on this forum endorses capital controls, theft of private wealth, confiscation via taxation, etc etc. then there needs to be some soul searching.
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Well, we had all of those in the US too. The difference is that we rewarded the thieves.
 
To clarify exactly what it was that Iceland did, they created three new banks under state ownership, moved all the 'marginally good' assets out of the old banks and into the new banks, then bailed the new banks out with a combination of printed money and IMF loans. The result is that three of the four major Icelandic banks are partly or entirely owned by the state.
 
I'd like some citation on Icelandic banking to back some of these claims.


I'm no expert. Do teach.
 
Bit more info on what Iceland did. http://dealbook.nytimes.com/2014/01/15/after-crisis-iceland-holds-a-tight-grip-on-its-banks/?_r=0

The metamorphosis is a result of one of the biggest bank crashes any country has ever had. The risk in Iceland’s financial system has dissipated, but the basic businesses of banking have shrunk as well. Lending to consumers and businesses has slowed to a fraction of what it was before the crisis.
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In October 2008, all three of Iceland’s major banks collapsed. None failed more spectacularly than Kaupthing, the bank whose glass headquarters were on the waterfront. At one point, it had a balance sheet four times as large as the annual economic output of the entire country. Last month, four former Kaupthing executives were sentenced to multiple-year prison terms.
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Iceland’s leaders did not see bailouts as an alternative when they took control of the banks in October 2008. The three major banks were 10 times as large as the country’s gross domestic product, in contrast to the United States, where bank assets were about the same size as the annual G.D.P. Even if it wanted to, Iceland did not have the resources to save its banks.

Instead, the government took the banks and separated off all the loans and financial products that were outside Iceland — the majority of the assets — and stuffed them into a so-called bad bank with no government backing. The government also made it illegal to move money out of the country, halting a run on the local currency, the krona.

Even with these steps, the economy shrank 16 percent over the next year, and the unemployment rate rose to nearly 10 percent, from around 2 percent.

In Iceland, blame for the crisis fell almost entirely on the country’s financiers. While banks in other parts of the world were tangled up in bad bets on the American mortgage market, banks in Iceland had taken on mountains of debt to bet on speculative assets, and had spun a web of self-serving loans. Almost all the top executives were fired and many are now facing criminal prosecution.

Initially, the government was in charge of the banks, running them on an emergency basis. Soon, though, new companies were set up to oversee the mortgages and corporate loans in the country, with ownership split between the government and the creditors of the old banks.

To run the new companies, the government looked for people who were not tainted by involvement with the banks in the boom years. Mr. Palsson had been working outside Iceland, at a pharmaceutical company, when he was chosen to run Landsbankinn. Mr. Olafsson came to Arion Bank from the local subsidiary of Visa.
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The banks’ first task was restructuring the loans of companies and households that could no longer pay them. The government passed a law mandating that loans had to be reduced to no more than 110 percent of the underlying property — helping homeowners who had ended up underwater, though it did not eliminate the inflation-linked loans that people like Mr. Gudjonsson have.

Landsbankinn went further and began a campaign to reduce the debt of any company or household that was unable to pay off its loans. This pressured the other banks to make similar efforts.

Another law made it illegal for banks to pay bonuses more than 25 percent of base salaries, and until recently none of the banks paid any bonuses at all.
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The impact on businesses and individuals?

But a transformation of the financial system can accomplish only so much in a country that faces such a long road to recovery.

Many companies and households in Iceland are still deeply indebted. Birgir Gudjonsson, a 37-year-old policeman in Reykjavik, said that the banks had been too interested in rebuilding their businesses and their balance sheets, and not helpful enough to homeowners like him who bought their first homes just before the crisis. Because many Icelandic loans are linked to inflation, Mr. Gudjonsson owes more than he initially borrowed.

“We’ve been hearing, almost weekly, ‘Oh look at this, everything is great,’ ” he said in the two-bedroom apartment where he lives with his wife and two daughters. “We just have to look in our wallet to see the reality.”

Companies and homeowners that want to borrow more are also having difficulty given the conservatism of the banks and a lack of access to foreign investors. In the first nine months of last year, for instance, Landsbankinn’s net new lending to corporations and individuals was 0.8 percent of what in was in all of 2006.
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