Two days ago, a group of Dutch people who had their savings in Icesave accounts arrived in Iceland, along with a film crew. They’re here to visit the bank and government officials, and they want some answers.
A couple of them were interviewed on the TV news and I must say, my heart goes out to them, as it does to anyone who had money in Icesave accounts. Hearing people’s stories, putting faces to the statistics, really brings home what an awful scenario the Icesave debacle really is.
For anyone who’s lost track, Icesave was a branch of Landsbanki that was opened in the UK and the Netherlands and into which private individuals and local authorities, charities, etc. deposited their money. Icesave was a runaway success story – within the space of 18 months, the bank had managed to collect over 6 billion British pounds in deposits in the UK, and in six months a few billion euros in Holland. With the collapse of Landsbanki, that debt was rolled over onto the Icelandic state.
Those are the accounts over which Gordon Brown decided to invoke terrorist legislation against Landsbanki and which caused the very deep diplomatic rift between Iceland and the UK – a rift that sadly will probably endure even beyond the resolution of the issue. Happily, though, Icelandic authorities announced today that every effort will be made to reach a resolution in the next couple of days – and not a moment too soon, since the immediate survival of this country seems to hinge on its resolution.
In essence, the dispute revolves around to what extent the Icelandic State should be responsible for compensating Icesave depositors. According to the EFTA agreement, a depositors’ insurance fund in the bank’s home country is responsible for guaranteeing deposits in the bank’s branches outside that country. The conflict here is about whether the Icelandic State is responsible for guaranteeing those deposits if the insurance fund does not have enough money to cover the deposits – which it doesn’t.
According to an EFTA directive, the fund is an independent entity and does not require a guarantee from the government. On this point, British and Dutch authorities and Icelandic authorities disagree. Until now there has been talk of the dispute being settled in court, which would be a sensible solution. However, evidently no court exists that could settle it, so the only option is an arbitration court. According to reports released today, that option was in the pipelines until early this month, but again there was conflict over the terms of the settlement [too long to explain here] so it was put on hold.
While the legal stipulations seem to indicate that the Icelandic government isn’t legally obligated to cover all deposits in those accounts, the Dutch and British have pointed out that the Icelandic government has promised to guarantee the deposits of all Icelandic citizens within Iceland, and therefore it must do the same for all depositors of the bank’s branches overseas. Failing to do so would be a breach of the EFTA agreement, which states that all nationals in the EFTA countries must be equally treated.
I don’t think there is any Icelander above the age of 20 or so who doesn’t feel the gravity of this situation. It affects us on so many levels. On the one hand, it’s very hard to be seen as thieving scoundrels who don’t care about other people and who are only out to cover our own asses – which sadly is the image of Icelanders propagated throughout the world today. Also, it is very hard to have had such a serious falling-out with countries who until a month ago most Icelanders felt very warmly towards and considered friends – over something that none of us – save for a few corrupt individuals – had no control over.
On the other hand, there’s the huge issue of having to be saddled with colossal debts – debts that will seriously debilitate our nation and that the next generations and generation after that will be saddled with. And all due to the deluded mistakes of a handful of unscrupulous bankers.
It’s like being between a rock and a hard place and, indeed, as a nation we seem to be at an impasse. Our application for assistance from the IMF is being held up while the dispute remains unresolved, and all the while more companies and individuals here are going bankrupt since our economy is effectively paralyzed.
It has been said that Landsbanki’s assets may well cover most if not all of the debts – and, really, that is the only ray of hope in this whole sorry mess. But since a bank’s assets are largely tied up in loans to its customers, how substantial those assets are can’t be determined until those loans mature and are paid back.
All of this begs the question why the assets of Landsbanki’s owners have not been frozen until a settlement has been reached in the matter. Why should the Icelandic nation – and our children and grandchildren – have to shovel the shit while the people who are responsible still own fricking football clubs in the UK?
And on that note – because the Icelanders tend to deal with trauma by poking fun – these, featuring the owners of Landsbanki, have been making the rounds in the last couple of days [from this site]:
And one last one, featuring our fearless leader:
IT’S A DAMP AND GRAY DAY
With slight winds and mild temps. RIght now 4°C [39F]. Sunrise was at 9.51 and sunset at 4.32.
{ 27 comments… read them below or add one }
“IT’S A DAMP AND GRAY DAY”
Here, too. Again. Which leads me to the suspicion that there must have been some kind of misunderstanding, or maybe a garbled transmission, the last time I prayed to god to “make my day”…
:-/
Ok, back to serious issues – the news that a compromise on the Icesave deposits is in the works sure is encouraging:
http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16539&ew_0_a_id=315330
This may be exactly what is necessary to untie the Gordonian [sic] knot that seems to be impeding the IMF negotiations. Like a commenter at another site said, a silver light at the horizon. Hey, maybe tomorrow will even be a sunny day!
LOL! I just love the way humor both sums up the truth and relieves the pain (at least temporarily) – especially gallows humor.
I really had to laugh at those spoof posters! A good example of humour in a bad situation.
Actually, I don’t know why the Icelandic authorities haven’t applied for global ‘Mareva injunctions’ to freeze/seize all the assets of the people who owned these banks. I am sure a lot of these assets were obtained illegally in some way. In any case, it is morally wrong that they should be allowed to keep them!
Alda,
I totally understand the difficulty the Icelandic government has when dealing with this situation. On the one hand they want to compensate everyone who has lost money through this bankruptcy, on the other hand, since this requires taking on a substantial amount of sovereign debt (and all Icelandic citizens will be on the hook for that, and none of the foreigners) refunding everyone doesn’t really treat everyone alike.
How do you feel about paying X years extra taxes to refund a British local government that was stupid enough to put all its money in the highest yielding bank account available despite rumours of the bank’s solvency? These things are not black and white, it depends on how you present the argument.
There would be a fair solution (though it falls short of refunding everyone). Instead of refunding everyone, Iceland could just borrow the amount of the refund with the savers of Icesave. So, people would be provided with Iceland bonds to the amount of their lost savings. Give the bonds the treasury yield and let them float. That would be a level playing field for everyone, though (and I repeat) it would fall short of compensating everyone.
The Dutch government already ‘lent’ the money the Icelandic deposit fund to repay the Icesave depositors (luckily not me as I transferred everything on the day the bank crashed).
There is nobody in this country that I have spoken to who actually expects the money to be paid back as people can do the sums and see that a tiny population cannot repay such massive debts. Of course the Dutch would actually like the money back some time so I guess that they have to keep trying for political show.
Iceland really has little choice in this matter. Either the EU/EFTA protocols are followed and all Icesave depositors compensated fully or Iceland becomes in effect a sovereign economic terrorist shunned by international bankers, the IMF, the EU and the rest of the civilized world.
I suppose there is a possibility that the Iceland government could change direction and not guarantee the deposits of all Icelandic citizens but I would think that is quite unlikely.
Landsbanki’s assets will not begin to cover a fraction of the obligations currently extant. This coupled with the fact that it will take years to unwind these obligations complete with international squabbling, litigation and currency valuation problems takes that solution effectively off the table. Iceland needs to make a move soon.
The question of Landsbanki’s owners assets is moot. As far as I can ascertain they have done nothing illegal under Icelandic law there fore their assets cannot be entailed. Stupidity or irresponsibility is not a crime. It is possible some other sovereign nation whose banks hold Landsbanki’s owners assets may try and and freeze them but again that would be years and years of litigation.
So “Why should the Icelandic nation – and our children and grandchildren – have to shovel the shit while the people who are responsible still own fricking football clubs in the UK?” Simple, you allowed them to behave so and now the bill has come due.
Iceland is in denial which is understandable. You are just starting a process which will take a decade or more to resolve. There is no light at the end of the tunnel yet, that is years down the road.
Penn – Things are looking up: the two disputes should be resolved soon (with UK and NL) and then the IMF loans can be unplugged. That’s progress and good news. And I suspect most British people would admit that Brown’s invocation of anti-terrorist legislation was disproportionate…
“The question of Landsbanki’s owners assets is moot. As far as I can ascertain they have done nothing illegal under Icelandic law there fore their assets cannot be entailed. Stupidity or irresponsibility is not a crime”
Sorry to disagree! Stupidity or irresponsibility are not crimes until they endanger the social or economic well-being of the country. I think the English government agrees with me on this point, as that was the arguement they used to impose “terorrist laws” on Kaupthing assets. What i do not get, is why the Icelandic government has not used the same sort of laws to get their hands on anything that is owned by the Bjorgolfurs, stodirs and baugurs of this world! Are they chicken, incompetent or too involved with these criminals? Or maybe all three?
How is it possible that a handfull of people kicked an entire country in the financial sh*t, but still go about their lives as though nothing has changed? Why are they allowed to fly their private planes back and forth to London, while Iceland has to accept loans from countries like Greenland and the faroe Islands. These bastards still sip champagne at fancy parties, as hundreds of families try to figure out a way to make next months mortgage payment.
Time for the Icelanders to make some strong demands from their government…..and maybe the protesters should march past the houses of Johannes Asgeir and Bjorgolfur too, lest they forget what they have done!
Ino,
Sorry to disagree also but:
“What i do not get, is why the Icelandic government has not used the same sort of laws to get their hands on anything that is owned by the Bjorgolfurs, stodirs and baugurs of this world! ”
Simple, there are no Icelandic laws that prohibit what was done. In fact the Iceland law and economic policies encouraged the banks in this behavior.
@ Kristjan,
the laws would not have to prohibit what already has been done, but undo what has gone wrong (like they did in the UK). These laws are in place and were copied from the ones that denmark passed through parliament after 9-11. Should be easy enough to put them into action now….
Ino,
The English did not undo what had gone wrong, if so this discussion would not be germane.
As I stated previous there are no Icelandic laws that prohibit what was done. In fact the Iceland law, the Icelandic Central Bank and economic policies encouraged the banks in this behavior.
Obligations 9 or 10 times GDP. Currency devaluation since October 2007. CDS insurance through the roof. There was ample warning this would happen. No one listened, not the government, Central Bankers or citizens of Iceland. I had an investment in Glitnir, I didn’t listen either despite knowing better. Fund 1 – read the prospectus and weep, I would guess the current valuation is 0.
The whole thing is a tragedy and it is just beginning. It took a decade to create this mess and it will take a decade or more to undo it. And far worse is yet to come.
Dude, you are completely misreading my comments; i am not saying anything about the past. i did not comment on laws that may or may not have been in place in the past to prevent this. i am saying that the icelandic government has anti-terorrist laws in place, modelled after the danish laws, that could be used to re-posses anything that is now owned by this multi-billionairs and millionairs (and i mean anything; football clubs, private jets, horses, even their silver cutlery). auction it all of, raise money and use it to pay back money owed by these banks. this way you would get a bit of your investments back as would many others, which might help to persuade the brits and the dutch to give the imf the green light for that loan you so desperately need. i think it is a scandal that they continue to live the high life while my childs future college education is now in jeopardy even though he never profitted from this golden decade!!!
Ino,
Well we can agree on:
“i think it is a scandal that they continue to live the high life”
but I suspect strongly nothing they have done is illegal under Icelandic law. Time will tell.
My investment in Glitnir is gone, partially the bankers fault and partially my own as I knew better.
As an American, I’m partly responsible for everything my country does. Foreigners are always happy to point this out to Americans (including to me), and they’re right. I take my share of the responsibility. I’m intensely aware of my responsibility for what my country does, and that’s why I’m politically active. For example, I donated heavily to Obama’s campaign, I worked many hard hours for his campaign, precisely because I’m responsible for what my country does. I think that’s why so many Americans are so politically active. So where’s the activism in Iceland? You guys are in serious trouble.
Eric; oh shut up! So you don’t think we’ve realized what our government, bankers and fellow countrymen have done? that we don’t feel responsible for allowing this to happen? You don’t think that we know how badly we’ve chosen our leaders for the past years?!
You need to keep up with our protests, and latest polls if you think you can call for an activism in Iceland. You don’t know squat about what it means when “only 6000″ people go and protest something like last weekend, couple of thousand less the week before and hopefully couple more next weekend. In general; I’m proud of Icelanders. We care more than our governments makes it look like!
Slapping us in the face with your latest pick of a leader is just… something I can’t wrap my head around. How many wars did it take you to realize the errors you’ve made? How many people had to die for the sake of Icesave? Maybe I’m too simple to take only the stupidity from you’re comment. Have you even seen the Icelandic results on iftheworldcouldvote.com ?
Don’t get me wrong, I feel horrible because of this money-mess, not just because I’m about to loose my house that I just bought. I’m still young, I can work for years to come. I’m not in my seventies and just lost all my savings. I feel bad, believe me and I’ll pay for this (I hope Alda will republish some of the calculation we’ve had on TV of how much this will cost us and our children.) BUT how bad I feel regarding this, compared to how bad I feel for the world fore having to meet with president Bush; is absolute moo point – it doesn’t matter! Heck, I feel good about how the europeans will learn from this that money isn’t everything – witch is not something I can say about you’re relicules wars!
Thanks for the rant! You’re still responsible.
The humor speaks volumes!
“On the one hand, it’s very hard to be seen as thieving scoundrels who don’t care about other people and who are only out to cover our own asses – which sadly is the image of Icelanders propagated throughout the world today.”
I don’t see the people of Iceland in that light at all. The guys featured on the DVDs, though, definitely. Very amusing.
It would appear some agreement has been achieved, and that Iceland has had to succomb. This was always innevitable, and whilst I can understand why Haarde + Co made a fight of it, a lot of damage has been done in the process.
What has to be understood is that the view of this debacle is very different outside Iceland from that within. The EU was always going to rally around the UK and NL.
If some of the hubris can subside and insults stop flying, steps can be taken to make the situation for Icelanders very slightly less terrible, though terrible it will still be. My heart does go out to ordinary folk who find themselves caught in the meltdown, especially those who didn’t extend themselves with foreign currency loans. Most folk aren’t economists and rely on advice. They were cruelly deceived and whilst protest may have had a slow start, it will innevitably grow. The scale of the irresponsibility of the entrepeneurs, banks and government is staggering.
As I have said previously, the UK is on the same path. Brown may be basking in the glow of praise for his initiatives, but he and we are also in a dire and rapidly deteriorating situation. Sterling is in freefall as the markets are well aware of the collosal liabilities the country has taken on in baling out our banks – which are also too big for us. And our bankers are just as arrogant and unapologetic. They are spitting blood that they can’t continue to pay insane bonuses. Barlcays is a prime example – taking money from the Middle East at a higher premium than that offered by the government on the rationale that it maintains it’s independence, whereas the real truth is that it’s management can continue to pay itself grotesque amounts.
They were drunk on leverage, bonuses, unsustainable growth and just cannot grasp what they did and where they are. Those of us who are not in debt (mortgage aside) have at least the opportunity to batten down the hatches for survival. I cancelled the flash car I had on order yesterday!!
Hi
I’m really happy with this post. It seems thoughtful and balanced.
From a US perspective (I’m American), I believe that a large spectrum of people were ‘responsible’, not just an influential few. Everyone had an insatiable desire to spend, and everyone absentmindedly built a system which allowed for easy business expansion, purchase of homes, or fresh mortgages for cash. A ‘selection process’ was occurring from bottom up, and for this reason I believe most Americans share the blame. I’m well educated and have a good job, and even I have no savings (read: an average American!). Is it right to single out rich or authoritative people as those at fault, or is that just being blind to everyone else who drove the system to that point? Is there a similar arguement for Iceland?
Said another way – I’m arguing that businesses are like robots. They do what we tell them – somewhat indirectly.
Great blog. Good luck. Will donate soon.
It all just makes me glad that I’m four hundred thousand dollars in debt and don’t have any savings.
Marc, you make a great point there: ‘How do you feel about paying X years extra taxes to refund a British local government that was stupid enough to put all its money in the highest yielding bank account available despite rumours of the bank’s solvency? These things are not black and white, it depends on how you present the argument’.
If the town of Selfoss and a few police depts around here would put all their money into bonds in a bank, in a small country somewhere, well I don’t think they’d get much help from the government, rather a bit of scorn. They’re supposed to know better or at the least to have people work for them that know better. (a good post on the issue’s here, in Icelandic). A totally different thing is the normal people who just want to have a bank account.
I’ll be protesting in the streets tomorrow, like I’ve done for the last 4 weeks. We’ll keep going until the politicians and especially the CB leaders show any responsibility. It’s incredible that they still just sit there!
A point, I’ve seen some ppl remembering the Cod Wars, and connecting them to this time. Maybe they should try to remember just a little bit further back, when Britain basically just had one friend in Europe; this friend sacrificed a third of their fleet and quite some lives to help.
“I’ll be protesting in the streets tomorrow, like I’ve done for the last 4 weeks. We’ll keep going until the politicians and especially the CB leaders show any responsibility. It’s incredible that they still just sit there!”
That’s a mystery to me too!!
A funny Icelandic take on 007 solving the current dispute:
http://youtube.com/watch?v=eZO3BlQGmRA&fmt=18
I am hoping that the dispute will be solved as soon as possible, and as Bjorgulfur stated then the properties of Landsbankinn abroad should cover most of the cost, and perhaps the total. It is very sad how the crash of this bank has affected many nations, and how the witch hunt goes on to find whom is to blame.
I hope this will resolve in a way that is acceptable to all.
I was in Iceland over the summer, and loved the place and the people. You are all in a very difficult situation and I don’t envy you. On the other hand, you are not alone. It looks like the entire world is in deep economic trouble. It’s true that there are corrupt politicians, bankers and business people who have been unscrupulous in setting up the financial instruments that have dragged everyone into this deep, dark hole. And whoever and wherever they are, they should be held accountable…. and they certainly shouldn’t be left in charge – kind of like putting the fox in charge of the henhouse.
However, let’s be honest; many, many, many ordinary folks everywhere were perfectly happy to participate in the system – to deposit their money in banks offering unrealistically high interest rates, to take out loans that they had no realistic hope of repaying, to take out loans in foreign currency heedless of the risk of currency fluctuations, to participate in uncapitalized credit markets. I take it this was one of points made above by Kristjan (and Paul in HK, too). For example, when someone takes out a mortgage for a house without having made any downpayment and whose payments are interest only, that person has contributed to uncapitalized credit markets. Both the person taking the loan and the bank which made the loan participated in an uncapitalized deal. It’s not just the bank’s fault; the person who took the loan is also responsible for essentially a high risk deal. Same with credit card purchases, where people buy and buy, and pay back next to nothing on each billing cycle. Yes, banks made it easy, but ordinary people have been perfectly willing to take up the terms of easy (uncapitalized, that is, unsupportable) credit. This was all based on an unwillingness or inability or both to assess the nature of risk and to have a concern for the future – both one’s own and that of others.
Of course, it is aggravating and feels very unfair to those who acted responsibly even in the face of the easy money – e.g.,those who didn’t take out unrealistic loans or run up credit card debt, those who deposited their money in a bank thinking that they were saving for their future and who didn’t understand what the banks were really up to and so on – all those who acted responsibly and didn’t take on ridiculous risks are also left holding the bag, and paying for the mistakes and irresponsible behavior of those who took the ridiculous risks. But, isn’t that part of the nature of social life? That we are all interconnected and are fates are tied up with one another. So, in a sense, everyone has to take responsibility, even if they themselves didn’t directly cause the problem, because there really is no alternative. Maybe part of taking responsibility now is participating in protests to oust from power those who have exercised their power irresponsibly. And, okay, there should be a fair distribution of blame and costs; some people are less blameworthy than others, and shouldn’t pay as high a cost as others. I think everyone agrees that it is morally offensive that the high fliers are still living high and unaccountable. My only point is, at least in a democratic society where people are free to make both political and economic choices, are there really many “pure” victims (children and those who are disabled or infirm aside)?
I take it that the point made by Eric above was that even if, for example, he didn’t vote for Bush, as a citizen in a representative democracy, he participates in that society and therefore is responsible for what his society does. Presumably, he paid his taxes which went to support the war in Iraq, even if he personally didn’t support the war or the Bush administration. In other words, he, like any citizen, at least in a democratic society, participated in the system that is his society. If a U.S. citizen who never supported Bush or the war is responsible in at least some sense for what the U.S. has done, then the same goes for citizens of other democratic societies; they, too, share some responsibility for the sins of their governments. One could be a conscientious objector; one could refuse to pay one’s taxes and end up in jail, but most people don’t do that. In a democratic society, they participate and some of them also find avenues to protest, to try to influence their politicians and representatives, to get different ones elected, and so on.
If one of the problems that is revealed by the global economic hole that we seem to be in is that globalization of corporate entities (banks, businesses, etc.) has led to an inability of governments to adequately regulate their activities, then that has to be addressed, for that would mean that even democratic societies are weak in the face of unbridled greed and powerful institutions and individuals committed to their own greed. But, do people _have_ to allow this to continue? It’s not clear to me, anyway, that they do. People, at least in democracies, can and maybe have to insist that their governments reassert control over these entities and not allow the ideology of unbridled, unregulated capitalism to operate. Whether this would mean reverting to narrow nationalisms or developing effective transnational bodies that have the authority to regulate growth and greed remains to be seen. Or, maybe there have to be new initiatives at both national and transnational levels; they aren’t necessarily mutually exclusive. Given the problems that the world faces – climate change, pollution, growing water shortages, interlocked financial systems and economies – it seems that there really is no alternative but for people at least those in democratic societies, to insist that their governments reinvent and address these transnational issues. But, in the short run, it’s going to be very, very painful for just about everyone.
The exchange rate spread is a little worse today. Free float 286/1 (ISK slightly down), official rate unchanged at 171/1.
{ 2 trackbacks }