Yesterday I got all bundled up and headed down to the weekly Saturday demonstration, in the freezing cold. Yes, the demonstrations are still being held, although the number of people in attendance have dropped substantially. Yesterday there were 500-1,000 people there, including a group of four Germans who came to Iceland expressly to find out what Kaupthing has done with their savings.
The drop in protester numbers comes as no surprise, although it is a bit disheartening … after all, there is so much that needs to be done, and it is so essential for us, the public, to remain vigilant. One of the speeches yesterday [by Andrés Magnússon, a psychiatrist] focused on the need to hold the tycoons who bankrupted this nation accountable – not only morally, but, more importantly, financially. Indeed, so many of the foreign reporters and journalists I have spoken to in recent weeks are flabbergasted that the Icelandic people have directed their anger primarily at the politicians and regulators, and not at those who have created the mountain of debt that we are now saddled with. My personal feeling is that they have just not been accessible – they have hauled their sorry asses out of the country and have returned only fleetingly to appear on Kastljós or Silfur Egils just long enough to point the finger at everyone – and anyone – else.
Yet public sentiment is shifting. We needed a change in leadership, needed it in order to restore order and credibility. The old government had lost trust. This was the government that privatized the banks five or six years ago, sold them to their own personal friends and party supporters [YES]. Sold them to people who proceeded to use them – to use OUR deposits – as vehicles to finance their own ventures, pet projects and boundless greed. They literally sucked them dry. Not to mention what they siphoned off into their own private bank accounts abroad … one of the Left-Green MPs estimated a few days ago that between ISK 1,000 and 1,5000 billion has been transferred into tax havens by those who owned the banks. A horrifying figure.
Meanwhile we, the tax-paying public, are suffering. Saddled with paying back their debts, while they sit on their gold coffers like vipers. Forced to endure large-scale unemployment, cutbacks in health care and education, massive inflation. The scale of that injustice is so huge that I can hardly get my head around it.
Meanwhile, we have those two Central Bank directors who refuse to step down from their posts, allegedly because they don’t feel it is “fair” that they should have to go. Yet all across this nation people are being fired or laid off by the thousands as a result of rationalization or downsizing. Well, this new government has now decided to downsize the operations of the Central Bank. And the two remaining directors should have the decency to leave without complaint – just like the thousands of other Icelanders who are having to do the same, in large part due to the failures of those same CB directors.
On that note, the organization Raddir Fólksins is calling a protest in front of the Central Bank tomorrow [Monday], where people are encouraged to show up at 8 am with their pots and pans [a continuation of what is now being dubbed Búsáhaldarbyltingin, or The Saucepan Revolution], in an effort to block the directors from entering the bank. If it worked before, who says it won’t work again!
ON ANOTHER NOTE
I will be taking part in a live panel discussion [by telephone ] for Worldfocus, an international news program airing on public television stations across the US and being broadcast on Tuesday evening at 6.30 pm EST [that's 11.30 pm GMT - in Iceland and the UK]. They are inviting questions from the general public, so if there is anything you would like to ask, please submit your questions by clicking here. Afterward the broadcast will be archived on their site and also on the Huffington Post. I’ll make sure to post a link.
AND ONE MORE THING …
For the last several weeks it’s become apparent that some sort of comment guidelines are needed for this site. Obviously I love getting comments and have no problem with the vast majority of those; however there have been instances recently in which I’ve had to delete comments or blacklist people, and these guidelines illustrate why. Please take a moment to read them over. Thanks.
IT IS AN ABSOLUTELY GORGEOUS DAY
We had brilliant sunshine until just a few minutes ago, when a small cloud formation moved in. It’s milder than it’s been for days, right now 2°C [36F]. The day keeps getting longer and the sun rises higher in the sky each day … sunrise today was at 9.45 and sunset is due for 5.39 pm.
{ 59 comments }
Your point about where the anger of the Icelandic people should be directed–at the banks or the government–brings up a question. In the U.S., in addition to anger at Wall Street for its greed and at the government for its lack of oversight, there is also a certain recognition–at least in some circles–that we are all accountable, that part of the problem was caused by too many people living beyond their means on credit, not having enough savings, taking out mortgages they couldn’t really afford under the assumption that the housing market would rise indefinitely, going for “investments” with unrealistic promises of easy returns (i.e., the Bernie Madoff victims), and just a general lack of oversight of the workings of one’s retirement plan or other investments, etc. etc. Among some people here, the financial crisis coincides very nicely with growing trends like “urban homesteading” (i.e., people growing their own food in the city) and other efforts on the part of individuals to become more self-sufficient rather than depending on the financial system or on the government to take care of them. I’m wondering if there’s an equivalent sentiment in Iceland, and if so, how that is manifesting. (My apologies if you already covered this in an earlier post and I missed it.)
It’s interesting that you mention the tycoons. It’s been all over the British press in the last few days about the downfall of Jon Asgeir Johannesson. Here is just one of many articles:
“Everything must go: The demise of Baugur”
http://scotlandonsunday.scotsman.com/business/Everything-must-go-The-demise.4958220.jp
Deirdre — I think there is a bit of “urban homesteading” popping up in Iceland to some extent already (OK — obviously it’s harder to grow food here seeing as the weather is not cooperative ; ‘ )
For example, I know several women AND a few men here that knit (or are learning to knit) their own sweaters, hats, & etc. or arrange small-scale “swaps” of clothing and goods. In fact, the Environmental Science Studies organization (“GAIA”) at the University of Iceland is organizing that school’s first ever clothing swap in an event called “Green Days”. I think people (esp. young adults now) are also being more creative about preparing foods, baking their own breads, and freezing foods to be more economical.
On the flip side of the Kreppa, one thing I have noticed is how crowded downtown Reykjavik is lately — especially after the Saturday protests. I think the protests are actually a blessing to the downtown merchants who see an upswing in cold, hungry people buying coffee, enjoying lite snacks at cafes with friends, or browsing sales on Laugarvegur. Maybe now people realize it’s more fun – and a bit cheaper – to hang out downtown than at the malls. So not everyone is staying home and knitting, munching on slátur, or feeling sorry for themselves ; ‘ )
What’s next on the agenda of the PM and the government after getting snubbed by the CB board? They could put forward some vote of no confidence, if only symbolic, to expose the fact, that those CB governors are giving the finger to the Icelandic nation.
Last week we had some demonstrations in Germany too, concerning the Kauphing issue. There are many people in Germany, who have lost some of their savings with this Icelandic bank, which is sometimes eclipsed by the Icesave case. And the German government has been giving the impression, not to care too much. Last october people, who had lost their deposits with Kaupthing, were first denigrated as greedy investors, who deserve to loose their money, because they had been hunting for the highest interest rate. But the German supervisory authorities did not object to Kaupthing’s activities.
Recently I came across some page, presenting the splendor of the aircraft fleet of Iceland’s oligarchs. It looks like a real-life satire. This gives some hints, where some of the missing money has gone (or how it has been flown out of the country). I’m particularly impressed by the gilded seat belt buckles in one of the helicopters. So, you get a different impression, what it means for some chosen few, to tighten one’s belt.
Bjorgolfur Gudmundsson has started turning up at West Ham games for the first time since last September! Is it any coincidence that this has happened at exactly the same time Iceland removed the Independence Party from power??
The word from the Premier League club is that he has no intention of selling it anytime soon, even though the moratorium on its holding company is up on March 6th.
How many holding companies can one man have,ffs.One of the holding companies that initially bought the football club was owned by Eggert Magnusson and registered in Panama City.The Icelandic authorities will have no chance getting near the monies these people have stashed and will just be left picking up all the their debts unfortunately.They should all be classed as economic terrorists.
Deirdre,
finally someone who’s saying the truth: icelanders are responsibile as well.
It’s easy to revile now easy scapegoats, as guilty as they certainly are, like politicians and bankers, but who watched the scapegoats?
I can’t help feeling that icelanders are still mired in a very convenient ignorance on the depth of troubles they’re in and loath of accepting and acting on the harsh reality of being much much much poorer than before (as they should be, rightly so given the circumstances).
Wake up, before your options runs out (see hard currency reserves).
sorry, I meant “before your options run out…”
Lino, would you kindly read the comment guidelines? A little sensitivity goes a long way.
Deirdre, Lino – certainly the Icelandic population is responsible for some things. But we cannot be responsible for the things we did not know about. The bankers took our money and ran. We are saddled with their debts. I don’t feel responsible for that. The tycoons owned the media. Information about what was going on was purposely kept from the public. The media was owned by the tycoons. The regulators allowed the banks to grow to 12 times the size of the gross domestic production of this country. They had information about where everything was headed, and did nothing. They failed in their role.
I did not live beyond my means. Neither did my husband, my daughter, or my stepdaughters. Still, each and every one of us will be paying the debts of bankers who continued to take risks even when they knew everything was about to collapse – including deposits from foreign depositors. Those debts probably amount to ISK 10 million for each of us.
We were duped, lied to. So it is very hard for me to accept responsibility for the bank collapse.
Just read that M. Oddsson has no plans to step down. Mutter…
What will the next moves be?
Apologies for my poor coding above! The story link in question is
here.
> and not at those who have created the mountain of debt that we are now saddled with.
What happened was that the banks were borrowing money for short periods of time (six months, a year) from the money markets and then investing that money in long term deals (ten, twenty, thirty years to maturity).
Then the money markets froze up which means the banks – althoug solvent – were illiquid.
The banks now are in the process of liquiding their assets to pay their debts. The main loss here is that assets sold en masse and prior to maturity fetch less than their expected value.
Borrowing short to invest long is what banking *is*. Most banks however like a firm depositor base, so they’re not so vulnerable to the money markets. Northern Rock in the UK lacked such a base and imploded when the money markets froze up.
The banks didn’t create a mountain of debt when they were running. They did however get themselves into a situation where if they failed, they’d take the economy with them, because they became through their borrowing many times larger than the economy which supported the currency they operated in.
The Government is primarily responsible for that, however. They should have known better – this is basic stuff. It just goes to show that regulation doesn’t work.
> one of the Left-Green MPs estimated a few days ago that between ISK 1,000 and 1,5000
> billion has been transferred into tax havens by those who owned the banks.
I’d wait until the auditors report. Politicans typically provide information in a way which favours their personal agenda.
> Meanwhile we, the tax-paying public, are suffering. Saddled with paying back their debts
You are not paying their debts. The banks have been wound up. The State is not putting money into the banks. The banks are liquidating their assets to pay back as much of their debt as they can. Tax is not involved.
You are suffering because they have collapsed, because their collapse destroyed the krona, and it is *that* which has caused massive disruption to the Icelandic economy. Well, that combined with the high interest rates Iceland has always had, because it imports more than it exports, which caused lots of people to get loans backed by foreign currencies (e.g. a lot of people chose effectively to speculate in the foreign currency market; no one made them do this – and it is their choice in this matter which has made the collapse of the krona so painful for so many).
If the population hadn’t voted so consistently for the Independence Party and so Iceland had joined the EU and so had the euro, Iceland would not be in this situation.
I have to say, I think you are painting a very black-and-white, good-vs-evil, picture of what happened. It is not so simple.
“I love to receive comments on this site and I welcome open discussion.”
While I would agree you love to receive comments you clearly do not welcome open discussion, rather you welcome discussion that fits your worldview and in some cases expunge others and prevent posting (no bad language, no threats just an opinion that differs from your own).
It is your blog, do as you please but it is disingenuous at best to say that you welcome open discussion.
BX – I don’t know where your information comes from or if you have insider knowledge of the Icelandic system.
Glitnir, for example, phoned their customers and advised them to transfer money into a money market fund – Fund 9. Customers were told that those investments were virtually foolproof. They were to be in government bonds, etc. – which perhaps they were initially. When it all collapsed, however, it transpired that those funds were used to finance Baugur’s companies, including FL Group, which at the time had the most massive loss in Icelandic history. We, the customers, were duped. It’s completely black and white.
As for us not paying for the bank’s debts … who is covering the Icesave deposits? There is no way that the bank’s assets will cover those – or the massive debts that are now coming to light in all the other banks. Kaupthing, for example, granted one of its favoured clients (a large shareholder in Exista, which owned a large part in Kaupthing) a MASSIVE loan right before the bank collapse, knowing it was a big risk. That loan, and many others, will have to be written off. No way will the assets of the bank cover all of that. Who will pay? The Icelandic taxpayer.
They used those banks as their own personal sources of capital. And we’re stuck with the bill. It is very simple.
Oh Really – I could delete all the comments that don’t fit with my worldview – as many bloggers do. I don’t. As far as I’m concerned, that is welcoming open discussion. That doesn’t mean I don’t have have my own opinions.
And while we are on the subject, it is very easy for people like yourself (and others) to expound your opinions under a pseudonym. How about appearing under your own name?
I didn’t mean to imply that I thought it was the same in Iceland as in the U.S., or that everyone there was living beyond their means — I don’t know enough about the situation in Iceland to make any kind of judgments – that’s why I was asking for feedback.
And certainly many people in the U.S. were–at the least–lulled into complacency about what was going on by the media, banks, etc., if not outright duped, they were certainly not encouraged to question the situation. A few people, such as Peter Schiff, did predict all this, but he was treated as crazy by most people.
I guess what I’m wondering is, the situation being what it is –however it happened– are there ways in which people in Iceland are thinking about becoming more self-sufficient, as well as whatever changes they hope the government will make to change things?
I would expect, that members of the IP, who are able to free themselves from the CB governor’s spell, might probably realize, that this man is increasingly becoming a problem for his own party and their prospects for the elections, given his obviously low popularity. I wonder, if and when this slavish obedience towards him is going to crumble. Maybe not before the election date but certainly thereafter.
As far as I have understood, the Icelandic state has agreed on paying back the Icesave and other savings accounts beyond the means of the Icelandic deposit protection fund. I think, this money is supposed to be paid by the Icelandic taxpayers. So, tax seems to be involved.
“How about appearing under your own name?”
Like Alda Kalda?
“Glitnir, for example, phoned their customers and advised them to transfer money into a money market fund – Fund 9. Customers were told that those investments were virtually foolproof. ”
I owned some of Fund 9, I suggest you read the prospectus. Investments were to be in “Icelandic corporate bonds, Icelandic government bonds and Icelandic debt instruments linked to bonds” (i.e almost anything). In other words Fund 9 holders were betting solely on the health of the Icelandic economy. We all know how that turned out. Who told customers it was foolproof? I am looking at 3 pages of boilerplate on my prospectus that states the exact opposite, that in fact this investment may cause a loss of “part or all of the capital invested”.
“We, the customers, were duped. It’s completely black and white.”
Actually you were not duped. Both you and I freely made a bad investment. I understood the risks, you perhaps did not. We lost 15% or so which admittedly is not wonderful but in comparison to many Icelandic equity holders not too bad.
Posted via a web proxy in Anguilla as seemingly my IP set is prohibited from posting.
Best Wishes,
Oh Really
The Government is primarily responsible for that, however. They should have known better – this is basic stuff. It just goes to show that regulation doesn’t work.
What? Regulation works, when everyone follows the rules, and the fox isn’t guarding the henhouse.
In Iceland (as in the US), the same people watching the banks were the people profiting from them. This is exactly what regulation is supposed to prevent.
I like Krugman’s term for this – “lemon socialism”. Because it privatizes profits and socializes risk.
Oh, Really, you can’t read the bottom of every page, which contains Alda’s full name? Then again it was obvious you weren’t reading closely or completely.
I am no fan of the krona, but I do not see how Iceland being on the euro would have helped matters. When the banks made guarantees to depositors to help drain them of cash, and then shipped out billions in unsecured loans to their playboys, or lost billions in illegal stock manipulations, at the end of the day the Icelandic government (read: people) was going to have to guarantee those deposits, no matter what currency it was in, right? The euro would not have been a magic bullet unless some other government or the ECB wanted to fund the hijinks of the plutocrats.
Deirdre – basically what Jessica said. People are economizing in small ways. They think more about what sorts of products they buy in the grocery store, they buy directly from fishermen, etc. etc. Yes – and they knit. But let’s face it – Iceland is a country heavily dependent on imports. There’s only so much we can do.
Lissa – I like Krugman’s term for this – “lemon socialism”. Because it privatizes profits and socializes risk.
Bravo. That’s exactly what we’re seeing here.
Yes, it’s quite true that the real culprits were the Jon Asgeirs, Bjorgulfs, and the 33-200 top “executives” at the banks who used the bank assets as a “slush fund” to steal money from.
But as protesters, you have to do what you can, which means ousting the old government, the enablers of the Ponzi scheme, and complaining to the new government to try to do something constructive (imo, the new government has done a pretty good job, so far). How do you express your anger at Jon Asgeir, the Bjorgulfs, and the bank criminals? Fly to Britain and protest outside one of their mansions? Surround Jon Asgeir’s empty house in Iceland, or his mothers house, or the airport hanger where JAJ’s jet sits when he comes to Iceland? Chase the Hafskip ships in little rubber boats? Shut down 101 hotel/bar downtown? Boycott Bonus? Or how about flying to the Caymans or Tuks/Caicos and beating pots & pans in front of the government offices? None of that is possible, or it won’t do any good. Only a new government can have any effect. For instance, trying to get Britain to get their Finanancial Services to prosecute the criminals and track down the offshore accounts (I have heard a rumor that Iceland has done that – demanded that repayment of the Icesave money is contingent on Britain trying to crack down on the bank thieves in England). Even that might have only marginal success, since it’s very difficult to recover from these offshore accounts, and the money they could get would only cover a third of the banks’ debts.
@ Oh Really,
I am a foreign reader of Alda’s blog and I do have outspoken views on the Icelandic predicament. Sure it is true that when you post a blunt comment you get a reply like ‘so you think you’re so smart do you?’. I think I would do the same (and as they say in my country, the best sailors are ashore). Still fundamentally Alda is 100% correct when assigning responsibilities and pointing out the failure to take the blame. I think your comment on fund 9 was rather elitist. If you read the fineprint on medicines you encounter lots of ugly diseases, though when your doctor advises you to take a medicine, you do. ‘Oh it’s all in the fineprint’ is not good enough. You expect a professional advice, not a selfinterested one.
in every democracy people live in the unnderstanding that there are systems and regulations in place to safe-guard the best interest of the people. many of us do not understand the finer workings of the law or economics, but we are lead to believe that we vote for people who do. these people, politicians, are responsible for puting these systems in place and regulating them. as a citizen we should be able to trust these systems.
when your house catches fire, the fire department pulls up in a shiny red truck and tackles the flames. because that is what a government promisses to do! and non of us should have to be active within the fire department to know wether they will actually show up.
icelanders should not have to work for the central bank or the fsa, so that they can keep an eye on the ACTUAL workings of these government agencies.
in america the banker madoff lost 40 billion dollars under the watchfull eye of several federal agencies!!! (that is one person losing 4 times icelands gdp, btw) not only his investors should be angry, but we should all be, that these people are allowed to hurt the world economy like that. having said that, i do not think that there is any ordinairy citizen in the u.s who feels responsible for the loss of this money.
and what about all these banks in england that have been bailed out because they were over-leveraged and mis-managed? or in ireland? holland? germany? france? spain? etc etc etc!?
so why do some of you constantly want to state and hear that it is the fault of the ordinairy icelanders?
@Marc
Oh Really is hardly ashore, he’s lost money as well.
I do not see where he’s “elitist”: he just said that a fundamental truth, there’s always a risk, even on state bonds, there’s nothing for nothing.
And that you should always read and understand before you sign: what’s wrong in that?
If you do not understand the rules of the game, perhaps you shouldn’t play, surely if you enjoying the idea of winning, come on, be fair, accept the idea of losing.
>so why do some of you constantly want to state and hear that it is the fault of the ordinairy icelanders?
not only theirs of course, but why did nobody watch over the watchers/regulators? It’s a citizen duty to be vigilant, NOT to blindly trust.
When you trust that way, you are not absolved from that duty, on the contrary, that makes you even more responsible: if the politicans/bankers succeeded in doing what they did, either they are geniuses or somebody (possibly a multitude) was sleeping…
and so, lino, you are responsible for the bank bail-outs in your country? you saw it all coming? why did you not say anything? i do not know where you are from, but it must be nice for the fellow citizens that they now have a scapegoat in you!
Wow, some heated commenters on this article… it looks like it’ll be a long time before there’s a consensus on allocating blame! For what it’s worth, I’d be suprised if lax financial regulation (allowing a small number of private speculators to use a large proportion of the country as collateral) doesn’t end up top of the final list. And the other issues (consumers overextending their credit, banks misselling financial products, etc) also seem related to financial regulation…
unfortunately, I already have to foot, against my will, disasters made by politicians (for which I never voted for) “on my behalf”: it’s a general clause of responsibility called “we have the politicians we deserve”, and that applies to me as well, perhaps not as individual since I’ve never voted for them, but surely as member of a national collectivity that has a disgrace of not being capable of deserving something better.
Apparently some clauses are universal.
I do not have the crystal ball, just some rudimentary notions of macroeconomics, finance and… psychology+sociology.
And frankly, watching over Iceland is not my duty, it’s icelander’s…
@ james
“As he faced the economic situation at the close of 2008, Alan Greenspan, the Chairman of the Federal Reserve from 1987 to 2006 who guided the U. S. economy for many years, admitted in a congressional hearing that his ideology the invisible hand of markets based on self-interest without regulation had been wrong, seeming bewildered as he apologized.”
that is ALAN GREENSPAN, once the most powerfull man in the banking world before a congressional committee.
unfortunately, in iceland we are stuck with david, who governed during the same period and followed the same ideology as mr greenspan. yet david sees nothing wrong with his actions.
but it is excactly his liberal views of the market and the lax financial regulations he implemented that now make him target no. 1 in iceland….
The Icelandic banks, being unable to get refinanced on the global banking market, turned instead to the retail market. Why did they do this? Because they could rely on the trust or the informational deficit of their customers without professional banking background and lure them into providing the much needed money, when other sources had dried out.
It is beside the point, if they also gave out some paper informing about the hypothetical danger of loss of their customers’ investments. The point is, that this danger wasn’t hypothetical but real. And the banks knew about their difficulties and didn’t tell.
Not accepting this as malpractice on the side of the banks sounds much like the general shrug of irresponsibility, which has been around for so long. Affected by this are Icelandic as well as foreign customers. But the Icelanders have been forced to shoulder the banks’ debts to the foreign customers as well, which multiplies the burden.
ino wrote:
> “As he faced the economic situation at the close of 2008, Alan Greenspan, the Chairman of
> the Federal Reserve from 1987 to 2006 who guided the U. S. economy for many years,
> admitted in a congressional hearing that his ideology the invisible hand of markets based on > self-interest without regulation had been wrong, seeming bewildered as he apologized.”
Where did you get this quote from?
The only place I can find it on-line is in an article by “The Houston Catholic Worker”, a Christian newspaper which appears to have a view on economics which is a blend of socialism and religion. The rest of the article is, ah, written by people with a highly biased and emotional view of economics. A bit like getting KKK members to write something on the nature of freedom and the independence of blacks.
Flygill wrote:
> Yes, it’s quite true that the real culprits were the Jon Asgeirs, Bjorgulfs, and the 33-200 top
> “executives” at the banks who used the bank assets as a “slush fund” to steal money from.
Are you alleging that the bank managers were actually *stealing* money, apparently for their own personal use, from the banks? (and indeed that this is the cause of the problems now??)
Scott wrote:
> I am no fan of the krona, but I do not see how Iceland being on the euro would have helped
> matters. When the banks made guarantees to depositors to help drain them of cash, and then
> shipped out billions in unsecured loans to their playboys, or lost billions in illegal stock
> manipulations, at the end of the day the Icelandic government (read: people) was going to
> have to guarantee those deposits, no matter what currency it was in, right? The euro would
> not have been a magic bullet unless some other government or the ECB wanted to fund the
> hijinks of the plutocrats.
A major part of the problem has been the devaluation of the krona. This has made paying foreign currency loans nigh impossible. Had Iceland the euro, devaluation would not have occurred and life would be a lot easier now.
Lisa wrote:
> I wrote:
> > The Government is primarily responsible for that, however. They should have known
> > better – this is basic stuff. It just goes to show that regulation doesn’t work.
> What? Regulation works, when everyone follows the rules, and the fox isn’t guarding the
> henhouse.
Name me one occasion where everyone has followed the rules and the fox wasn’t guarding the henhouse. It’s like saying “communism works, as long as you don’t get power mad idiots in charge”. Name me one instance of communism where you didn’t get power mad idiots in charge. The point is – you cannot seperate these two things. The very nature of communism is that you end up with power mad idiots in charge, and the very nature of regulation is that the rules are avoided and the people who are being regulated end up dominating the regulator. *This is why* regulation doesn’t work. Well, one of the reasons, there are others. But this is enough by itself.
> In Iceland (as in the US), the same people watching the banks were the people profiting
> from them. This is exactly what regulation is supposed to prevent.
How did/does the Financial Supervisory Authority profit from the banks? ditto question for the US (with regard to the multitude of regulators there).
> I like Krugman’s term for this – “lemon socialism”. Because it privatizes profits and
> socializes risk.
That is the inevitable outcome of State interference in the market. The application of money obtained through tax to privately owned enterprise is the inherent socialization of risk.
> Glitnir, for example, phoned their customers and advised them to transfer money into a
> money market fund – Fund 9. Customers were told that those investments were virtually
> foolproof. They were to be in government bonds, etc. – which perhaps they were initially.
> When it all collapsed, however, it transpired that those funds were used to finance Baugur’s
> companies, including FL Group, which at the time had the most massive loss in Icelandic
> history. We, the customers, were duped. It’s completely black and white.
I have not heard about this. I will try to investigate and see what I can learn.
> As for us not paying for the bank’s debts … who is covering the Icesave deposits?
To the extent possible, personal deposits will be covered by the sale of the assets of the banks. I suspect the Government will put Icelandic small investors at the head of the queue, since they are the people least able to cover such losses.
Beyond that, no one is covering those deposits, because the wealth to pay for them does not exist. The only way it will work is for that wealth to be covered in nominal terms, and that will require printing krona, which is really a way to transfer wealth from those who have wealth to those who do not (e.g. theft), and would also lead to the utter collapse of the krona.
> There is no way that the bank’s assets will cover those
I may be wrong, but they might. Remember – the banks were solvent, they were just illiquid, and I think they borrowed much more than they took in deposits. Even with a low realisation rate on assets, deposits may be covered. However, this doesn’t help so much if you desposited krona, because the value of the krona is now so low. Deposits even if returned fully in the nominal terms (“here’s your 250,000 krona, sir”) are now worth in real terms perhaps a quarter of their original value.
> – or the massive debts that are now
> coming to light in all the other banks. Kaupthing, for example, granted one of its favoured
> clients (a large shareholder in Exista, which owned a large part in Kaupthing) a MASSIVE
> loan right before the bank collapse, knowing it was a big risk. That loan, and many others,
> will have to be written off.
I may be wrong, but I think that loan will either be called in (unlikely) or be sold. However, the value of loans made by the banks to Icelandic companies is questionable, since those companies are by and large heavily leaveraged, which makes their survival questionable. In those situations, the wealth represented by those loans may indeed be largely permanently lost.
> No way will the assets of the bank cover all of that. Who will
> pay? The Icelandic taxpayer.
The State will not be paying off loans taken by the banks from the money markets which were used by the banks to fund their own loans. The banks have not been nationalised. The State will be honouring its deposit guarantee – it can hardly do otherwise – and that of course means using tax, e.g. a redistribution of wealth. But that’s what a State guarantee IS, and that guarantee is something everyone knew existed and knew how it worked and benefitted from before the catastrophe occurred. Personally, I think such guarantees are criminal – what right does the State have to use my money to guarantee other people’s risk? but you’ve got what you’ve got and there you go. You voted for them.
> They used those banks as their own personal sources of capital. And we’re stuck with the
> bill. It is very simple.
Hang on – you’ve just made a huge jump, no? you went from loans being made which have to be written off, to “they” (the bank management?) using the banks as personal sources of capital. I’m not sure what you mean by that, since “personal source of capital” would imply management *themselves* were spending that money, which they were not.
Those banks were using the money markets as their source of capital.
Alda,
There was one man who for years tried to warn the Icelandic people about the dealings of Jón Ásgeir , Björgólfur Þor and others but was seen as a villian attacking Icelandic superheroes. He also tried to pass a law about media ownership so these people could not control the news and information in Iceland. You know who I am talking about but for the other readers this man was Davið Oddsson, former Prime Minister and current head of the Central Bank. Nothing is ever black and white.
GTB
“For instance, trying to get Britain to get their Finanancial Services to prosecute the criminals and track down the offshore accounts (I have heard a rumor that Iceland has done that – demanded that repayment of the Icesave money is contingent on Britain trying to crack down on the bank thieves in England)”
In other words, follow the money. Off shore tax havens means the British financial empire. Resisting intrusion into these sacrosanct locations, Caymann Islands, Channels Islands etc. is at the heart of British policy, which means especially avoiding regulation of them from Europe. British tax payers money is being channeled into these havens via the bailouts as reported here:
http://inthesenewtimes.com/2008/10/26/uk-governments-funding-banks-off-shore-tax-evasion/
So this puts us in the same boat as Icelandic taxpayers. It would help a lot if we could get that money back to its original owners. There is a head of steam building up internationally to regulate these havens and so, contrary, to Flygil I think there is every reason for Icelandic protesters, and their parliamentary representatives, to raise this issue
After the breakdown of communism in Eastern Germany it was fascinating to learn, how many people had hiddenly been in opposition to the old regime. You might have had the impression that they were trying to glorify their own role and attempting to rewrite history a little bit.
I’m not familiar with the intricacies of Icelandic politics. But in a democracy everybody, holding an important public office, should be prepared to leave, if he is not being trusted anymore. It should be up to independent investigations to clarify his role.
”Without a properly functioning banking system, the economy will continue to contract.”
I think that’s why we have a CRISIS!
It’s really beginning to catch my breath- I think it’s called ”panic attack.”
That’s the tune I hear, and the lyric is we can’t do without the ones who got us into this ms in the first place. Yes, the tycoons who bankrupted this nation (nations) should be held accountable morally. Financially is legally a little tricky, but I know what you mean.
The need to start again is apparent but it seems like there will be no intelligent move to create a new system, a commonsense system that works or at least admit the financial model has failed, not because of a few rouge bankers or the American sub-prime, – and the like – but because the investment model itself does not work in the interest of all concerned.
I read constantly: ”Last year’s business plan now reads like Alice in Wonderland,”
Business built up on debt can be none other than Alice in Wonderland. Creating small businesses as another form of outsourcing is ludicrous, especially when most of them turn over a profit; pay employees a decent income, and are continually in (the red) debt.
As long as you keep that model afloat giving the idea it will (like the Titanic) right itself, you will continue to (get only deeper into the mire) have landlords, businesses and banks (trying to continue business as usual) looking for the impossible. Let it go/collapse for gods sake.
I read where Brian Cowen (Irish Prime minister) mentioned banks should be talking to mortgage holders about what they could pay instead of repossession, something I suggested months ago. (who the …k am I?) It’s not me, it ‘s just commonsense, why does it take so long to do the right thing.
Recapitalization will not work, it can’t work. Perhaps America can print money but Ireland – if they could – couldn’t print enough.
Obama the grate wonder of the world is looking more ordinary as everyday passes by. Anyway!
I guess this is it really, we’ll go on talking till the cows come home, and watch (the protesters dwindle as small groups get deals on the side) as the world leaders dig us deeper into social unrest, and by then it will be the minority, those in society who have little voice and less likely to get sweet deals (pay offs) who will be the trouble (communist scum) makers.
It seems the bottom of the bucket must every time fall out before government see the need to replace it, and then usually with a plastic bag for the Proles that is, because there’s not enough tin to go around.
Funny how the tin appears in emergencies when there’s not supposed to be any to spare.
Gregg, Davíð never tried to warn Icelanders about Björgúlfur Thor, he sold/gave the Landsbanki to him. And just a few years previously he stated in the Alþingi that a law on media ownership was unnecessary.
He was instrumental in privatising the 2 state banks and de-regulating the economy in order to make those of whom he approved rich.
When his actions helped make people he did not approve of rich instead he became furious and attempted to pass legislation that was clearly aimed at one single company and a single individual.
That was why it was stopped.
@blank xavier…..
here is the video of alan greenspan saying he is SORRY….
http://www.youtube.com/watch?v=55-A1-D3MR0
he will tell you that he was wrong at 8 minutes en 30 seconds. enjoy!
Hmm. Lively topic today.
On a slightly-related note, any chance of some “Minn tími mun koma!” products for the IWR store?
@ blank xavier,
if you do not like watching video, you can read it here
http://www.bloomberg.com/apps/news?pid=20601087&sid=ah5qh9Up4rIg&refer=home
also, the “they” that Alda mentions, i think, are the owners of the bank, i.e the tycoons of iceland. they used the banks to fund the expansions of their empires…..
Name me one occasion where everyone has followed the rules and the fox wasn’t guarding the henhouse.
Strawman. The reason one has rules is because not everyone wants to follow them. You also seem to be defining the fox as “government” whereas I’ll define it as “businesspeople with commercial interests in the banks.”
How did/does the Financial Supervisory Authority profit from the banks? ditto question for the US (with regard to the multitude of regulators there).
You must be kidding. Are you implying that the members of the CB didn’t financially profit from their actions? That their friends and families didn’t?
As for the “multitude of regulators” in the US, they were emasculated by Clinton (although Reagan started that process), so they were neither multitudinous nor effective at all. Hence the last 3 recessions.
The invisible hand of the free market seems to enjoy giving the economy a prostate exam.
@ Lino
We live in a complex society where a lots of things just ‘work’ and unless you work in that particular field you don’t care too much about the how’s, you depend on the trust you can put into someone. When you are being medicated, you trust the doctor has prescribed the right medicine, when you buy a bread, you trust the baker has followed the recipe. The analogy with medicine is quite appropriate I think, as medicines also contain information leaflets in fineprint and lingo that is not easily understood. So, there you expect the doctor/farmacist to inform you of the important risks that go with the medicine. Most financial products contain a big information folder where the risks are discussed, but they also use specialist lingo and the relevance of the risks is not explained. That’s what your banker of investment advisor should do to you. Banking & Investing is not only about selling, it’s a highly qualified profession. Simply stating that risks were laid out in an information leaflet is an elitist comment.
Mondrian – yes, indeed. We have a number of ideas but alas, EPI and I have both been so busy that we haven’t had time to sit down and do any designing. But we will soon.
Ljósmynd DE wrote:
> The Icelandic banks, being unable to get refinanced on the global banking
> market, turned instead to the retail market. Why did they do this?
Because there had no where else to get money from.
> Because they
> could rely on the trust or the informational deficit of their customers without
> professional banking background and lure them into providing the much
> needed money, when other sources had dried out.
People are responsible for their own lives. If a bank suddenly starts offering you 7% interest and your reaction is “oh, wow, that’s great!” and you put all your money and life savings in there, then you are an idiot and you badly need the experience you’re about to have so that you become better at living your own life.
If a deal looks too good to be true, it is. The Government are not your parents and they are not responsible for your life. You are. You make mistakes and you learn from them.
I mean, *seriously* guys. Banks normally offering 2% or 3% interest – suddenly a bank offers 7%.
You don’t stop to think – hmmm, why?
You don’t think it *odd* that someone would not?
None of the people were forced into those savings accounts. The contracts were voluntary. In some cases I’m expect they were *not* well-informed, which makes them unethical. However, the savers in these contracts have considerable responsibility for their own lack of information. In other cases I suspect people thought it might be a bit too good to be true but decided to go for it anyway – on the basis that there is a deposit guarantee scheme. In other words, because the State uses our money to guarantee people who saved with Icebank, those people were happy to do so despite quite possibly having some misgivings about doing so.
Perhaps holding bankers accountable for their unethical/criminal actions (and the government accountable for its inaction) — and I think it is fantastic that that is happening so vocally in Iceland! — and learning to take more personal oversight of one’s finances rather than just trusting what a bank recommends are not mutually exclusive??
It seems to me that they are both aspects of being an empowered citizen, which is what democracy is really about. In the words of Thomas Jefferson, “The price of freedom is eternal vigilance.”
In addition, IMHO, the analogy with doctors is interesting, but doesn’t quite hold, as doctors at least take an oath to protect people, and bankers are of course just in it for the money. And even with doctors, one is supposed to get a second opinion/do one’s own research before just going with their diagnosis/prescription (and of course most of them are totally in the pocket of Big Pharma). I always think that knowledge is power, because ultimately it’s my body and my life, so I want to be totally sure of what I’m doing.
How come some people are saying that it’s the fault of the Icelanders for not holding their leaders accountable, but then act like the Icelanders are whining now that they actually ARE holding their leaders accountable?
That’s what I find so annoying. Let the people protest, let their voice be heard, let them be a part of creating the new constitution and society, so that maybe if everyone has their say in it from the beginning, everyone can understand it from the beginning as well. I don’t see anything constructive from saying it’s the Icelanders’ fault, because whether it is or isn’t, they ARE taking responsibility by making their voices heard and protesting the Central Bank. The people have finally woken up and that is what all the naysayers say they should have done before, so why all the looking-down at them now? It makes absolutely no sense.
The blame game isn’t what matters, what matters is that the people are now aware of how much they didn’t know or were ignoring about what was going on, and are rectifying the situation. Also, officials in top positions understand that they are taking on responsibilities when they enter their function. Therefore, I don’t see why they deserve more sympathy than the protesting Icelanders who now have to deal with the ramifications of what has happened. Yes, responsibility goes both ways in a democratic society, but quite frankly I’m annoyed at people thinking that by protesting against the CB, people are putting all of the blame on the CB. They’re not. The point of the protests is not really blame, the real point is change, the real point is doing exactly what all the smug couch-economists outside Iceland are saying they should have done before.
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