Excuse me. Sorry to interrupt. But for obvious reasons I STRONGLY object to the above. Not only that, I find the remark completely idiotic.

Comments on this thread are now closed.

UPDATE!!
After a frantic message from ino I am pleased to say that the above was a misunderstanding resulting from a typo – he meant to write “unlike the people who comment on this blog” and is wery wery sorry. I think we must forgive him, no?

But comments on this thread are still closed. Feel free to continue it in the Forums if you really, really want.

first of all, i was not talking about the icelandic market, but the american, where the credit crunch started….

second of all, these mortgages, that quickly became bad, were aimed at people who are not very smart. people who can not oversee their finances, unlike the people who comment on this blog. aimed at people who do not understand the difference between an introductory rate and the actual rate. basically these loans were aimed at the underbelly of society of dumb people. (pardon my french). banks knew excactly who they were targeting, as any marketing consultant will tell you. they advertised during jerry springer with slogans like “no credit rating? no savings? or JUST OUT OF PRISSON?” (this btw, is not a joke!!!)

the objective was very simple; banks get these people to sign, then collect the fee for selling this product, and tie this loan to other loans in big packages of bonds that are sold with a tripple a+ rating on the financial markets to speculators……

people/banks who behave like that, need to be regulated to the point where you tell them how many toilet breaks they can have in a work day!

nobody forced the borrower to “take advantage” of higher ceilings… it’s up to the borrower to calculate if they can afford it and it’s up to the borrower to decide whether to sign or no the loan contract.
If the borrower miscalculates, who’s responsible.
Knowing that drug are bad for your health, if tomorrow they legalized drugs, would you complain later that someone else is guilty because yuou indulged in vice?

>mortgages went up from 5 times peoples income to as much as 10 to 12 times their income, completely stretching their budget

what would you expect if you borrowed in strong currency and your revenue are in kronur? They indulged in lower interest rates instead of the kronur’s but it was obvious (oh yes, very obvious) that they accepted an exchange rate liability.

>mortgages went up from 5 times peoples income to as much as 10 to 12 times their income, completely stretching their budget

and banks forced at gunpoint those people to get a loan?

I find this account of the crisis a bit more balanced:
http://icelandreport.blogspot.com/2009/02/grand-unified-theory.html#comments

you wrote

“You will find yourself out on a limb if you are arguing recession is caused by insufficent or inadequate regulation”

well xavier, here i go….. the credit crunch that is causing this recession is a direct result from insufficent or inadequate regulation!

not only on the part of the fsa, but also on the part of the directors of the banks themselves.

first of all the banks started to up the ammount of money you could borrow. mortgages went up from 5 times peoples income to as much as 10 to 12 times their income, completely stretching their budget.

second point is that banks started lending to people who hardly had an income! people straight out of jail were actually targetted in advertisement for mortgages

thirdly, these people were lured in to taking this mortgages using low introductory rates, without proper explanation of the actualy monthly cost after this period.

and last but not least, these bad mortgages were bundled up with good mortgages, so that they would get a tripple a+ rating and be sold on to other investors. these investors then found out that it was not in fact tripple a+ and lost a lot of money….

(btw, the company that does this rating, is not a government agency. in fact, as their ceo explained in a bbc docu the other day…. the BANKS pay him to give them a rating on their package! so what is his incentive to not give them the AAA+ rating that they want?)

so…. i think we need more regulations for banks indeed! the idea that banks would not take risks that would be bad for business, is apparently not true. modern day ceo’s are no longer the men in pin-striped suits who worked for the same bank their whole life and tried to build a sustainable company. the modern day ceo is an italian suit wearing job hopper, who gets huge bonusses for taking huge risks. and when it all goes wrong, they are not accountable, and can just take their earnings and buy an island!

so clearly these people need very strict regulations! so strict in fact, that we might just as well have state run banks…..

BX: This is turning things upside down. The banks were deliberatly concealing their own
> difficulties to get money from unsuspecting customers.

In what way? were their accounts falsified?

as it turns out now, yes indeed. if you had been following the news, you would be aware of all the off shore accounts that got to borrow money from these banks to buy shares in those banks using those shares as the collateral for those banks. these banks also lend out the money to buy shares in the investment compannies that owned the banks and the collateral was, again, only the shares in those companies.
all this was done to keep the share price high, so that these banks and compannies looked healthy.
i do not know if anything illegal was done, but i do know that that is wrong!

“The Government are not your parents and they are not responsible for your life”

on an intelectual level you are absolutely right in most of your arguments. however, life is more than just rational. that is why our banking system is called a fiduciary system! we, the public, should be able to trust banks not to go bankrupt. (in my 40 years on this planet, i do not think i had ever heard of banks going so bankrupt that the deposits were not guaranteed) and if/when they should do go under, your deposits should be guaranteed by the state (remember, this was one of the most important lessons we learned from the great depression. to stop people from withdrawing all their money and the economy grinding to a halt).

lets be honest, 7% on a bank account is more than average, but it is defenitely not “to good to be true”. if you were to invest that money on the stockmarket your returns good be a lot higher. remember madoff? he promised a much higher return and to a better informed clientele and yet not even the fsa thought that there was anything smelly going on. it also has to be said that the icelandic banks came to europe, because of serious liquidity problems. they already had a serious cash-flow problem and several central banks in europe raised concerns, but in the end let them onto the market anyways. without sounding the alarm or adding extra warning to these financial packages. so people who went for a few % more on what looked like an otherwise ordinairy bank account should be compensated.

so yeah, the government may not be our parents, we should be able to trust them and even rely on them sometimes. President Roosevelt figured that one out almost 75 years ago….

> > 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.

No. That is not my point.

I am saying that regulation has failed because the rules that are created are effectively unenforceable. You can regulate till you’re blue in the face; it *cannot* work. Regulation is inherently broken. It is not a solution because it does not work.

> > 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 far as I can tell, the Financial Supervisory Authority is independent of the Central Bank of Iceland. If that is so, your answer is unrelated to the question.

Furthermore, yes, I assert the staff of the Central Bank of Iceland did not personally benefit from recent events. I challange you to explain how they have done so, if you believe that they have.

> 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.

You will find yourself out on a limb if you are arguing recession is caused by insufficent or inadequate regulation.

> The invisible hand of the free market seems to enjoy giving the economy a prostate exam.

Free markets don’t have regulation. The US markets are heavily regulated. Indeed, that regulation created Freddie Mac and Fannie Mae, and their creation ultimately led to the recent CDO disaster.

> BX: This is turning things upside down. The banks were deliberatly concealing their own
> difficulties to get money from unsuspecting customers.

In what way? were their accounts falsified?

> They were even advertising with the Icelandic deposit guarantee scheme, some kind of
> chimaera, as it seems.

Yes. That scheme had no money in it. It is hard to know exactly where responsibility lies in this matter. The bank should have known the scheme was a sham and not advertised on the basis of its existence. The State should not have permitted the scheme to be a sham, since the State brought that scheme into existance and forced it upon the banks.

> Kaupthing was offering 5.65 % interest in Germany – barely more than other banks – some
> kind of camouflage, I suppose.

You can’t have it both ways, Lj. In an earlier post, you berated these banks for offering high interest rates to take advantage of gullable customers. In Germany, where they did not, you argue it’s some kind of deceptive camouflage – to further decieve customers.

> And yes, everybody is responsible for his/her own investments. But this doesn’t change
> anything of the things named above.

Of course it does. If a bank suddenly offers an interest rate which is too good to be true and people are responsible for their own investments, then those people bear part of the responsibility for being duped.

And yes, everybody is responsible for his/her own investments. But this doesn’t change anything of the things named above.

Btw: I don’t have any investments with Icelandic banks, so, just relax! I won’t rely on “your” money.