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Icesave counter-offer rejected as turf houses appear on the horizon

In my self-appointed role as tracker of THE BLOB for the World at Large [that’s you], I herewith present the latest on the Icesave monster:

The Icelandic delegation went to London and Den Haag last week for renewed talks in an effort to avoid the Icesave referendum scheduled for 6 March. They talked and talked, then came back and talked some more. Predictably, very little was revealed about the nature or outcome of the talks [quelle surprise!] although a few people mumbled something about “fiddling with the interest rate.”

A day or two after their return, it was revealed that the UK and Holland had made a counter-offer to Iceland’s offer last week. What exactly this consisted of is about as murky as everything else surrounding THE BLOB, although Fréttablaðið quotes Wouter Bos, outgoing Finance Minister in Holland [they now have their own collapsed government], as saying it required Iceland to accept the following:

~ Full repayment of the loan

~ Fair compensation due to cost of the loan [interest]

~ Political unity in Iceland and the support of the President

~ That a simple solution be found [HA!] and for talks to proceed at a brisk pace

Hm. This was allegedly what they were discussing last week, but Sigmundur Davíð Gunnlaugsson [head of the Progressives] claims that the counter-offer sharply contradicts the terms being discussed then, which means that the above would NOT be included in the counter-offer. [Confused yet? Ready to have yourself committed to a padded cell wearing a straitjacket and gown open in the back? – You’re not alone.]

At least one of the above terms has been met, though, namely that there IS political unity in Iceland — to reject the mysterious counter-offer. This was done last night. On that occasion the Icelanders also proposed another round of talks.

Eyjan reports this morning that Dutch officials insist that Icelanders must agree to the fundamental criteria in their latest offer [the ones nobody knows about except a small handful of officials] — otherwise there will be no talks.

Meanwhile, Iceland’s Foreign Minister Össur Skarphéðinsson has requested a meeting with Hillary Clinton to discuss the International Monetary Fund’s refusal to continue with Iceland’s aid package unless Icesave is resolved.

This morning I spoke to a 75-year old gentleman who was fierce in his opposition to the Icesave bill. “We’re all heading back to the turf houses anyway, whether or not we accept Icesave. Under  no circumstances should we pay.”

The outcome of the referendum next week? Not that hard to predict.

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  • Peter - London February 23, 2010, 12:44 pm

    I can’t understand why the UK/NL is bothering to discuss this any more; Iceland doesn’t want to pay its debt so the only option is to find a another way of extracting the money and penalising Iceland until the debt is paid. Crime cannot be seen to pay.

  • Tom Harper February 23, 2010, 1:32 pm

    On the upside, I think turf houses are really cool…

  • Tom Thumb February 23, 2010, 1:45 pm

    I must have Hobbit blood. I love turf houses, as long as I can make a round wooden door for it and have a few windows on the water side. If your 75 year old will sponsor me, I’ll bring my backhoe!

  • Bromley86 February 23, 2010, 1:55 pm

    I know I’ve said it elsewhere, but now we’ve got a whole thread on the subject I’ll summarise again 🙂 .

    The Icelandic position really does appear to have centred on a delayed state guarantee. i.e. no loan required as there would be no debt until after Landsbanki was dissolved. Which is what the head of the PP means when he says that talking about loan conditions wasn’t part of their discussions. (This, BTW, was the first thing suggested by the Gestsson team a year ago.)

    The counter offer refused was EURIBOR (almost certainly 3m) + 2.75%, per Birgitta and others. i.e. the same as the Nordic loans. This would be 3.4% total, although back before interest rates headed south 3m EURIBOR was between 2 & 5%, so the bracket when they recover would likely be 4.75% – 7.75%.

    Interestingly, all the complaints publicly raise by Icelandic politicians so far have been about (1) the 2.75% premium (too high) and (2) the lack of a cap on the variable rate. Nothing about the Ragnar Hall issue.

    There have been Dutch reports of a 2 year interest free period, although I don’t believe that’s likely just because it would be such a good deal (bear in mind that the Icelandic negotiators this time around apparently said that 90% of the debt could be repaid within 3 years). Still, they keep repeating it so maybe it is true:
    http://www.fd.nl/artikel/14267518/haag-toont-bereidheid-ijsland-details-praten

    My reading of that Dutch statement about fundamental criteria is that they don’t want to talk about anything until Iceland accepts that any discussion of the existence or not, right now, of the guarantee debt is off the table.

    Curiously, there has yet to be a single article on this in the UK press whereas the NL are all over it.

  • Lino February 23, 2010, 2:21 pm

    Bromley86,

    there was an article on WallStreetJournal online on friday…

    By saying no, Iceland could jeopardize its membership of EEA: turf house it is, but without (all) the benefits of EEA it could be for much much longer.

    Mindless and baseless pride could make sense (?) for a 75-year old who is about to die and does not care about the future: he has none.
    What about Icelandic children and their future? The are to live in the turf house…

  • Bromley86 February 23, 2010, 2:54 pm

    Lino. There’s lots of good international stuff. Omar Valdimarsson & Tasneem Brogger are, as always, the first out with reliable detail:
    http://www.businessweek.com/news/2010-02-22/iceland-wants-more-talks-on-u-k-dutch-icesave-loan-rate-offer.html

    IANAexpert, but I doubt that the EEA membership is in question yet. It seems that there is sufficient uncertainty over the need for a state guarantee that it would have to be settled by a court first. Only at that point, if Iceland cannot secure the funds or refuses to pay, would expulsion from the EEA come up.

    Not that that saves anyone from turf houses. Even if the US leans on the IMF, if S&P downgrade Iceland then the cost of refinancing the borrowings due 2011 will be much higher. I didn’t really believe this until it was pointed out to me that junk status is not just a matter of perception, which could be overcome, but that many pension funds etc. have rules against investing in junk bonds.

  • Eliza February 23, 2010, 3:38 pm

    In French, that would be “quelle surprise !”, but indeed I quibble.

  • alda February 23, 2010, 3:40 pm

    Eliza – noted. Thanks. 🙂

  • Lino February 23, 2010, 4:14 pm

    @Bromley86

    >I doubt that the EEA membership is in question yet

    absolutely, you’re right: not yet. But it could come to that, in time, eventually. And with that go the advantages related to EEA, not negligible for Iceland otherwise why stay?

    >It seems that there is sufficient uncertainty over the need for a state guarantee that it would have to be settled by a court first.

    if my assumptions are correct, Iceland cannot wriggle out of the 20.000+ euro safeguard, and yes, the matter first has go to to (EU) court, though I cannot see how/why they would be left scot free without consequences.
    From the purely legal point of view, afaik, Iceland is legally bound to comply.
    Of course, EU will not invade, nor has way of “enforcing” payment in any way: however they could retreat… meaning leaving Iceland out of EEA.
    After all, what’s the use of a member that does not honour the agreements when it suits him?

  • Michael Lewis February 23, 2010, 5:16 pm

    Oh do grow up Peter. The only crime is the stupidity of those sticking their cash into Icesave – despite all the warnings. A private debt that shouldn’t be socialised to every Icelandic taxpayer.
    If HSBC went bust – would ‘we’ as UK taxpayers like to bail out billions to Asian customers – No, it would never happen.

  • Michael Lewis February 23, 2010, 5:18 pm

    I have to laugh at all the nonsence about threat of no EU entry. LMFAO – as if that were a bad thing…. I still can’t help chuckle to myself , as if anyone sane would want to belong to the EU/Eurozone…

  • Peter - London February 23, 2010, 7:12 pm

    Michael Lewis:
    Depositors are not investors and are guaranteed up to 20K, in the country they deposited in. Which in the case of Icesave, was Iceland.

    If you don’t understand the basics of the issue please refrain from posting insults.

  • James February 23, 2010, 7:43 pm

    “Curiously, there has yet to be a single article on this in the UK press whereas the NL are all over it”

    I read a paragraph in yesterday’s London Evening Standard on the underground home, but no mention of the turf houses…

  • idunn February 23, 2010, 8:10 pm

    It would seem the Dutch counter offer asks for everything they always wanted, full repayment with interest, PLUS the agreement that Icelanders should be uniformly pleased with such a bargain. All this before they will negotiate? What is left to negotiate?

    Actually, the Dutch are negotiating right now, if not admitting as much.

    On a side note, in watching the Greek budgetary problems and whatever the EU intends to do about this threat to their common currency and bond, I am always reminded of Iceland. Perhaps they would treat you more kindly if a member of this union, but then their strongest member, Germany, seems disinclined to do more than the bare minimum for the Greeks, possibly Spain, Portugal and Italy as well.

    In any event it might be seen that the problems of Iceland do not exist in a vacuum. If the banking mess the responsibility of some of your fellow citizens, it was precipitated by a global financial collapse. Any remedy, if instituted at home, will surely entail the cooperation of international parties. Thus their best interest as well as Iceland’s is to see a final solution as equitable on all sides as possible, for the effects will be felt in all quarters.

  • Lino February 23, 2010, 8:11 pm

    @Michael Lewis

    Iceland is (already) member of EEA, not EU.
    Yes, there are some states that would love to belong to the Eurozone (that is to have the Euro, formally). Of course it’s a mixed blessing, as anything, like staying out of it.

    At least an attack on the Euro is less likely than on, say, UK pound or swedish krona: as in 1992. As it could be in future.

    And yes, unfortunately, some states have the euro… and they should not

  • The Fred from the forums February 23, 2010, 8:13 pm

    Where do I find out what the “Ragnar Hall issue” is so that I don’t bog down the discussion by asking what it is?

    It’s normal for negotiations to stay confidential until some kind of agreement is reached: it cuts down on posturing by the negotiators and elbow-joggling by their employers. Yes, that doesn’t make it any less frustrating to be in the dark about something affecting the future of your nation.

    What do Icelanders think of legal arguments like those of Lárus Blöndal, Supreme Court advocate and Stefán Már Stefánsson at http://www.mbl.is/mm/mogginn/blad_dagsins/netgrein.html?art_id=95084 ?

    Fearless prediction: a generation from now, it still won’t be clear whether Iceland’s eventual decision was the right one.

  • Bromley86 February 23, 2010, 8:39 pm

    Lino
    From the purely legal point of view, afaik, Iceland is legally bound to comply.

    The legal case is not as solid as that. Although the majority of expert opinions available, as well as the EU itself, maintain that the guarantee is required there was an opinion from Mishcon, IIRC, that says that it isn’t.

    Michael
    If HSBC went bust – would ‘we’ as UK taxpayers like to bail out billions to Asian customers – No, it would never happen.

    Not a good example. You need to find a bank that the UK is responsible for supervising within the EEA.

  • Joerg February 23, 2010, 8:41 pm

    There was an article on FTD in Germany by Larus Blöndal and Stefan Mar Stefansson denying Iceland’s liability to provide a state guarantee for the Icesave debts:

    http://www.ftd.de/politik/europa/:haftungsfrage-island-darf-nicht-einfach-ja-sagen/50077060.html

    The reasoning in this article is very questionable in many respects. Everybody else is supposed to be responsible for the disaster except for the Icelandic state. And the foreign depositors are just told to go to the EU and lodge their claims there.

    As Lárus Blöndal is apparently also member of the negotiation committee, I wonder, if there is any chance to come to an agreement however generous it may be. Any offer on the table will very likely not be acceptable as long as the true objective of the Icelandic negotiators seems to be avoiding a state guarantee.

  • Joerg February 23, 2010, 8:53 pm

    @Michael: “I still can’t help chuckle to myself , as if anyone sane would want to belong to the EU/Eurozone”

    Apparently, Greece was so desperate to become member of the Eurozone, that they did not hesitate to cheat their way in by tampering with the figures. If you are suggesting, that all Greeks are insane, I would definitely object.

    @Fred: There have been links provided in the comments to a post on IWR a couple of days ago about this issue:

    http://icelandweatherreport.com/2010/02/the-uber-simple-icesave-solution.html

  • sylvia hikins February 23, 2010, 9:00 pm

    To-day’s Guardian: ‘ The finance minister said talks with both countries might be concluded successfully ahead of a planned 6 March vote….Britain and the Netherlands have offered Iceland easier terms for repaying.’
    Turf houses: re-read Laxness’ Independent People and then see if the romantic vision still holds.
    Yesterday I tried to buy Icelandic Kroner in the UK. Nothing doing. I have to wait until I get to Keflavik Airport. Do the banks know something that we don’t?
    sylvia from viking wirral

  • James February 23, 2010, 9:27 pm

    “If HSBC went bust – would ‘we’ as UK taxpayers like to bail out billions to Asian customers – No, it would never happen.

    Not a good example. You need to find a bank that the UK is responsible for supervising within the EEA.”

    Actually, HSBC is an excellent example. Banks from outside Europe must set up a UK subsidiary in order to operate in UK and that subsidiary must be a member of the FSCS. The British state provides a minimum guarantee for deposits in that UK subsidiary. However, of course the British state does not provide guarantees for deposits in HSBC subsidiaries in other countries (such as China, Hong Kong, etc). The key point is that they’re different subsidiaries (ie different legal entities), not different branches within the same subsidiary.

  • Michael Lewis February 23, 2010, 9:30 pm

    Sorry Peter but idiots that went chasing yield need to take responsibility for their own actions, expecting a handout from someone else is laughable. As for the comments about the Euro, equally idiotic. I pity the German taxpayer at the moment – he/she will be paying for the laziness and largesse of the socialist Greek state.

  • John C February 23, 2010, 9:45 pm

    And why wouldn’t anyone want to belong to the EU/Eurozone. Bad as we are, and the Irish economic situation, much of it self inflicted, is not at all good, there is a widespread consensus here that we would have been far worse off had we not been in the Euro and the EU. Public sector workers have had a 20% paycut (tell me about it, I’m one of them), private sector works have had a more mixed experience, lots have had paycuts and maybe 250,000 have lost their jobs. House prices have halved, commercial property is worse in many cases, the banks are a disasater. But still I think most people think that we are far better in that we would have been had we been a very small currency and country exposed to the tender mercies of the international financial markets.

  • alda February 23, 2010, 9:48 pm

    Michael & Peter – could you tone it down a little on the insults? Ta.

  • Joerg February 23, 2010, 10:30 pm

    @Michael Lewis: Sorry to say, but I’m still waiting for your first comment of any substance here. Or is your main objective to tag everybody else as “idiot” and “socialist”. How lame is that?

  • Michael Lewis February 23, 2010, 10:44 pm

    I don’t think I’ve insulted anyone. I simply find it grossly hypocritical of those that took a risk on Icesave should now pretend they have some sort of moral high-ground. I have to say, when I make a trade – some you win, some you loose. Take a loss on the chin like a man. Expecting other people to pick up your pieces is wrong.
    As for those in the UK with Icesave accounts – you were warned. Please stop expecting other people to pick up the pieces of your poor judgement. Joerg, I don’t believe I tagged everybody else as an idiot. Plainly some people are in my opinion. The whole point of a forum is (by definition) to invite discussion.

  • Michael Lewis February 23, 2010, 10:47 pm

    John C – Ireland is lucky – it has a government that hasn’t avoided difficult decisions, some other governments (notably the UK) have done so. But Ireland would be fine outside of the Eurozone – the Irish currency would have devalued and arguably cushioned the blow. But people are a bit parochial, people in Europe don’t realise how fast the Asian nations are progressing, they work harder, and Europe is starting to resemble the soviet union. Just look at the Greece and the unions.

  • Mark February 23, 2010, 10:53 pm

    @sylvia hikins

    You haven’t been able to get Krona in England for quite some time now. I live in between Iceland and England throughout the year as I work freelance and my kids are half Icelandic. It really throws my dad out of his comfort zone when he visits and can’t have the local currency in his pocket.

  • sylvia hikins February 23, 2010, 11:52 pm

    mark: I was able to buy some Krona in the UK when I came to Iceland in Sept, but maybe that was just a one off. What surprised me was that I could only change £40 sterling into Krona at my Iceland hotels, such was the fear of losing money by holding Kroner.
    I still remain convinced that a compromise will be struck between the UK, Dutch and Icelandic Governments, albeit at the midnight hour before March 6th. I would be surprised if Hilary Clinton can be of much help. I can’t see the Americans taking sides against ‘the special relationship’ over an issue that is essentially European.
    sylvia from viking wirral

  • hildigunnur February 24, 2010, 12:30 am

    Sylvia, wow that’s really weird – I’d have thought that everyone wanted to get rid of their krónur!

  • Mark February 24, 2010, 2:09 am

    @Sylvia
    I hope and wish that the vote on March the 6th takes place. Everyone I know needs to vent whether it’s for the right or the wrong. I’m not talking politically for the best of either nations but my mother in-law who has the order of the falcon for helping the elder generation to keep in touch with their offspring via Skype etc. is fuming! I get paid in GBP so it’s okay for me and my kids at the moment but what’s happening to my Icelandic neighbors is horrible.

    This was a basic read if anyone can’t get into the ins and outs of everything – http://www.hydle.com/blog/archives/338/comment-page-1

  • Lino February 24, 2010, 8:27 am

    @Joerg
    thank you for the link to FTD, since my german is nonexistent I had it translated by Google with mixed result. If (big IF) some meaning survived the translation and if (bigger IF) I caught some of it 🙂 it seems to me that his three points dissertation is, at the very least, shaky.
    The first point one is the only one that eventually deserves scrutiny.
    The second one (discrimination) is ludicrous and counter productive, not very smart from a supposedly smart lawyer (are all lawyers smart?).
    The third point seems a fudge, but combined with the first point it makes for a ridicolous and mightily funny fudge, since it’s circular and self contradicting.
    Again, if (IF1 + bigger IF2) I understand correctly, just an opinion.

    More than substance, looks like just sparring ammunition, more than thesis it looks like a manifesto (and bolstering) for the role of the author in the negotiating team: I wonder, how much are the negotiatiors being paid?

    I have to find a “other than german” version of the article, I want another fix of laughing entertainment…

    Greek did not just cheat entering the euro, seems it did it even afterward.
    If allegations are true, it went even beyond, doing things that are worthy of an ENRON scenario…
    No, not all greeks are insane but goverments of Greece have been, to put it mildly, very and willingly irresponsible. On behalf of greek people. That in turn benefited from such behaviour…

    @Michael Lewis
    the german taxpayer risks paying for greek freeriding but not just because of the euro, there are other considerations playing beyond your overly simplistic view of Eurohell and Eurodevils.
    Things are rarely black and white, the same with the Euro: some manicaean visions, like yours, more than revealing the stark nature of reality, instead lay bare the incapacity of a person of conceiving more articulate views and complex scenarios.
    If there is, in principle, a difference between zealotry and bigotry, with you I have a hard time spotting it 😉
    I agree with you however on your remark about Asia and the sovietization of Europe (western countries in general, not just Europe) but that is very old news…

    @Bromley86
    Mishcon, IIRC, I’ll look into it, thanks.
    You are right, UK/NL actions obfuscate the matter making the case garbled but, AFAIK, do not change the gist of the matter.
    And they could claim they intervened for the “safety of the system” (UK+NL’s of course).
    Perhaps THEY should hire Lárus Blöndal…

  • Laurence February 24, 2010, 8:45 am

    Check out John Kay’s piece in the FT from last night:

    “Iceland Should Stand Up to Shameful Bullying”

    http://www.ft.com/cms/s/0/46ef02dc-20b2-11df-9775-00144feab49a.html

    For those of you who have been bandying about the HSBC example,
    see what he says about Scotland: ‘In 2008 [Scotland’s] gross total liabilities totalled more than half a million pounds for each man, woman and child in the country…The liabilities of the Scottish banks are plainly not the liabilities of the Scottish population.’

    and:

    ‘[EU rules] forgot, however, to require that these deposit protection schemes had the resources to pay such compensation…’

    Let it go to court.

  • Michael Lewis February 24, 2010, 10:22 am

    Lino,

    “instead lay bare the incapacity of a person of conceiving more articulate views and complex scenarios.” says something about you, and nothing about me I’m afraid.

    “Greek did not just cheat entering the euro, ”
    I would suggest a bit of research. The debt figures were fiddled like crazy.

  • jpeeps February 24, 2010, 10:57 am

    Ref Michael Lewis: “As for those in the UK with Icesave accounts – you were warned. ” – Actually we were reassured by govt guarantees and studiously restricted our deposits to less than the insured amount, in the knowledge that if anything happened we would be protected. Not an indulgence on our part – but integral to the way the system works.

    What I still absolutely fail to understand is in whose interests it was to operate Landsbanki UK as a branch rather than a subsidiary.

  • alda February 24, 2010, 11:13 am

    What I still absolutely fail to understand is in whose interests it was to operate Landsbanki UK as a branch rather than a subsidiary. — Presumably it was in Landsbanki’s interest. That way they could more easily transport their funds back to Iceland – and from here to god knows where.

  • Bromley86 February 24, 2010, 11:49 am

    What I still absolutely fail to understand is in whose interests it was to operate Landsbanki UK as a branch rather than a subsidiary.

    Perhaps they didn’t want to expose themselves to the risk (ha!) that they’d face a levy from the UK FSCS if an institution like Northern Rock went under.

    More importantly, why let foreign regulators poke their noses into your business when you have the Icelandic bunch in your pockets? (i.e. what Alda said)

    Laurence. Despite his unsupported insistence that it wouldn’t matter, I thought he’d have had more of a point if they were Scottish banks, rather than British ones. Then it would be possible to more fairly lay the blame on that independent Scottish government.

  • Laurence February 24, 2010, 12:33 pm

    What I still absolutely fail to understand is in whose interests it was to operate Landsbanki UK as a branch rather than a subsidiary.

    Fully agree with your hypotheses, Alda and Bromley86. It is a well known fact that Landsbanki was unable to come up with international wholesale credit lines – their cash flow was already fizzling. The speculation goes that the decided therefore, to have a go at the UK/NL retail markets (albeit from a safe distance). The Icesave funds stuffed the cracks in the interim, and as you say, Alda, could be brought back to Iceland with minimal paperwork. There is further speculation, that these incoming funds were then subsequently handed out (among other things) for renewed investments back into the UK (companies we all know and love). We’ll just have to see the extent of the damage when (and if) it is finally revealed. It would be extremely ironic if it turned out that these loans (subsequent to Icesave), have now been written off by the (now bankrupt or subsequently restructured) UK companies who received them…(Oh, what a tangled web we weave!).

    A couple of questions though:

    Surely even if the Althingi find a new agreement with the UK and NL, nothing can be ratified unless there is a referendum? Are they not just wasting their time?

    And, Alda (or any Icelander), tell me this:

    Why does the Althingi consider that they are more qualified to make the Icesave decision than the Icelandic people themselves?
    Why not let the people vote on it?

  • Tom Harper February 24, 2010, 12:41 pm

    “Surely even if the Althingi find a new agreement with the UK and NL, nothing can be ratified unless there is a referendum? Are they not just wasting their time?”

    No. If the Alþingi come to a new agreement and can pass it AND the president signs it into law, there is no need for a referendum. Referenda are not part of the “standard” Icelandic legislation process, they only occur if the president vetoes a law that the Alþingi then fails to withdraw.

    “Why does the Althingi consider that they are more qualified to make the Icesave decision than the Icelandic people themselves?
    Why not let the people vote on it?”

    That’s the point of HAVING a representative gov’t. What would the point of having an assembly be if every non-trivial issue were subject to direct democracy. This is incredibly inefficient, and also does not work in practice.

  • Laurence February 24, 2010, 1:07 pm

    Tom,

    Sorry, mate, but I’m not that dim.

    1. If the President didn’t sign the last agreement, why should he sign this one? Do you think an interest rate of 5% over 5.5% is going to get him to sign? He has made his stance clear last time around, if the Icelandic people are against it, he will not sign it. (Course, everyone has mood swings.)

    2. Firstly: This is not a ‘representative’ govt. I am sure everyone will agree that this govt was created during a time of chaos and confusion, and that the great majority of the powers that be do not represent the voice of the people (case in point last veto – 1/4 of the population). There is also the issue of the lack of ‘qualification & experience’ of certain key members of the Althingi, but we won’t go there.

    Secondly: This NOT a TRIVIAL issue.

    Thirdly: The Icelandic population have made it loud and clear that they are against this Icesave agreement, PERIOD. And, they have made it extremely clear that they want to be ‘directly’ involved in this particular case.

    Fourthly: Switzerland manages to hold public votes quite efficiently all the time, and it’s over 20 times more populous than Iceland.

    Fifthly: Contest me if you will, but Switzerland is a democratic nation which (according to popular belief) runs like clockwork. (Just look at the trains.)

    So, Tom, you haven’t answered my questions. Besides, I was interested in an Icelander’s opinion.

  • Michael Lewis February 24, 2010, 1:22 pm

    “Actually we were reassured by govt guarantees and ….”

    Almost universally the financial press were warning people here in the UK about the state of Icelandic banks. Ultimately relying upon UK taxpayers to guarantee the savings. You could have used Nationwide, any mutual, but people went chasing ….

  • Andrew (the other one) February 24, 2010, 1:39 pm

    On Switzerland- also note that referenda have also produced results which discriminate against Muslims, women and foreigners. Like all forms of democracy it is not perfect.

    It is a good point about what happens when a deal is negotiated.Will it always go to a referendum? There are probably enough people in the “no, don’t make a deal under any circumstances” camp to make the outcome always “no”. How is the political establishment going to deal with that possibility? Has anyone really thought about how to move from a representative democracy to a direct democracy whilst in the middle of a financial crisis. Will other things be put to a referendum too?

  • Peter - London February 24, 2010, 1:47 pm

    “Ultimately relying upon UK taxpayers to guarantee the savings. You could have used Nationwide, any mutual, but people went chasing ….”

    Well, its the law, the accounts were guaranteed by the Icelandic government and they (the government) went to length to advertise that point. They also said that if Iceland couldn’t pay the other Nordic countries would help them out, what happened to that promise?
    Banks, none of them, of course do not have the deposits to repay and without a guarantee nobody would really consider depositing with them.

  • jpeeps February 24, 2010, 2:15 pm

    Actually Michael I think you’ll find there was very little in the UK press until the spring of 2008 (Icesave was launched in October 2006) – and of course the guarantee was in place, anyway.

    Of course, after help from Alda, Bromley86 and others I am now beginning to understand what was in it for Landsbanki to maintain a branch rather than a subsidiary in the UK. The fact that Landsbanki was allowed to get away with it just further underlines how supine the regulatory authorities were in both the UK and Iceland, and, if indeed the advantages to Landsbanki of the arrangement were as half as obvious then as they now appear in hindsight, one has to ask why the financial press weren’t onto to this much earlier.

  • Tom Harper February 24, 2010, 2:17 pm

    Laurence,

    I wasn’t trying to imply that you were dim. Your question implied (in my interpretation, at least) that you thought any Icesave deal *had* to go through referendum automatically, which we both know is not the case. The situation with Iceland is changing at a breakneck pace, so I think assuming a referendum is inherently necessary is a bit hasty.

    “Firstly: This is not a ‘representative’ govt. I am sure everyone will agree that this govt was created during a time of chaos and confusion, and that the great majority of the powers that be do not represent the voice of the people (case in point last veto – 1/4 of the population). ”

    You’re purposely splitting hairs, here. I was talking about the government structurally rather than the quality of representatives chosen.

    “Secondly: This NOT a TRIVIAL issue.”

    I never implied it was. I said that it is inefficient to have a government in which every non-trivial issue must be handled by the people directly. I think that mentioning that actually further implies that I was not characterising any issue in question as trivial.

    “Fourthly: Switzerland manages to hold public votes quite efficiently all the time, and it’s over 20 times more populous than Iceland.

    Fifthly: Contest me if you will, but Switzerland is a democratic nation which (according to popular belief) runs like clockwork. (Just look at the trains.)”

    Except for the fact that, as Andrew pointed out, it has led to discriminatory laws being passed. I would not describe the Swiss government as working “like clockwork”, but I suppose we’ll have to agree to disagree. Similar referendum systems exist at the state level in the US e.g. in California and Massachusetts, and it has shown that people are quite skilled at discrimination and shooting themselves in the foot fiscally when given unchecked referendum power.

    “So, Tom, you haven’t answered my questions. Besides, I was interested in an Icelander’s opinion.”

    I don’t know why you are being so antagonistic when I was trying to be helpful. If you are so desperate to avoid unsolicited opinions, whatever their intention, I suggest you avoid using the Internet.

  • Peter - London February 24, 2010, 3:17 pm

    “underlines how supine the regulatory authorities were in both the UK and Iceland,”

    The Icelandic authorities were very supportive of the passport scheme and the came to London to defend it to UK analysts, for all intents and purposes it was the Icelandic regulators idea. Apparently they didn’t understand that you cannot use these deposits to shore up the banks (but they did it anyway), even when it was pointed out to them.

    The UK regulator couldn’t warn people about the Icelandic banks as it would have brought them down in 2006 )when they were already walking dead).

  • Laurence February 24, 2010, 3:40 pm

    Tom,

    Appreciate your replies, and, naturally you are quite right, nothing is perfect, and nothing is a given. I understand that you were addressing your answers ‘in general’, rather than the specific issue at hand. You will have to forgive me for my tone; I believe quite fervently that:

    – the current Althingi has dithered for too long

    – the majority of its representatives are not competent to deal with this current crisis

    – any new Icelandic government that arose would most certainly have to be some form of direct democracy (at least during these trouble times)

    – whether a representative or direct democracy, all governments have problems (discrimination and poor decision making occur in all known forms of government – I’m sure you’ll agree)

    Actually, I am interested in all opinions, including your own, Tom; and I apologise for rubbing the wrong way; only, I was most interested in what the natives have to say. Sorry, nothing personal.

    Finally, any Icesave agreement that does not factor GDP growth in relation to interest rates is not worth the paper it is printed on. A strict (a la Gordon Brown) ‘pay-up, or else’ means nothing. Iceland could never pay 240% over GDP (i.e. the 5.5%) – besides where would it even get its foreign currency? The majority of its export sectors are heavily in debt. Also, with the original UK/NL Icesave agreement, Iceland would not meet the criteria for joining the EU anyway (currently max 60% of publc debt to GDP).

    P.S. A bit of jousting is always good for the blood flow… 🙂

  • Michael Lewis February 24, 2010, 3:41 pm

    jpeeps, If you had done a bit more research, I think you’ll find there were plenty of warnings about Icelandic banks. Whilst regulators certainly did fail, ultimate people shouldn’t escape the fact that they really should do due dilligence themselves. Luckily for RBS shareholders and Icesave investors, the UK taxpayer picked up the pieces.

  • Michael Lewis February 24, 2010, 3:51 pm

    jpees, this was Mar 08, still months for investors to have scaled back…

    Moneyweek

    Kaupthing is now having to pay almost 8.5% more than 5-year government bond yields (i.e. 12.3%) to raise funds. Kaupthing’s savings account pays just 6.5% AER, which doesn’t even come close to compensating us for the risk I’d say. The markets seem to be telling us that there is a very real default risk here. Glitnir Bank is not much better and even Landsbanki (owner of the popular Icesave internet banking business) has to pay the credit markets 6.0% more than risk-free rates and 4.2% more than ING does, for funds.

    Given that Icesave pays 6.05% on their easy access internet savings account and ING pays 6.0%, perhaps shopping around for the highest savings rate right now is not actually the best thing to do. Perhaps, just perhaps, we should pay more attention to the risk side of the equation too.

  • Great Eastern February 24, 2010, 4:59 pm

    “What I still absolutely fail to understand is in whose interests it was to operate Landsbanki UK as a branch rather than a subsidiary”

    Wasn´t Iceland a tax heaven at the time? At least compared to british taxes. A few percentage points from a few billions yields a few millions. Quite a bargain. Not a big deal Icelandic government at the time was glad to collect those taxes. Not a big surprise “Björgolfur and Sons” was so disappointed by Central Bank refusing to lend them as a lender of the last resort. As he said – “we had plenty of kronur”. Really, plenty of kronur there were. And, the biggest issue – they are still waiting for escape from Iceland.

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