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Our very own Alcatraz

OK, so the price hikes are starting to hit home now.

Yesterday I went to Hagkaup to pick up a few things and noticed a stack of that sacred harbinger of Christmas by the door: cases of clementines. I was about to grab a case to stick in my trolley when I was stopped short by the price: around ISK 750, up from around ISK 450 last year. Gah!

The next item I went to pick off the shelf – curry paste – was up from ISK 450 to nearly ISK 600, and that’s just from a couple of months ago. A half litre of yogurt – up from around ISK 170 to ISK 230 [and that’s not even imported].

Meanwhile, as everything goes up, most of us are having to take pay cuts. I’ve lowered my rates from before the implosion and EPI is one of the myriad workers who were laid off and then hired back with a reduction in salary. [He’s one of the lucky ones who actually got to keep their jobs.] However, we’re extremely fortunate in that we’re not in massive debt and have no loans in foreign currencies, so we’re doing OK, at least for the time being.

Not so for plenty of other people whose property has depreciated in value to the point that their mortgages are now considerably higher than the value of their properties. Some have actually decided to stop making payments and are considering handing in the keys of their homes to the State Mortgage Fund. They figure that even if their home goes into foreclosure and is auctioned off at a substantially lower price than it’s worth, they’d be better off than if they kept making payments for another year. This is debatable, however – if lots of people decided to take this route, for instance, and many properties were being auctioned off at once, presumably they would fetch prices so low that their calculations would no longer apply.

Today many people here are enslaved to their debts, which have grown massive in the wake of the implosion. It’s like an economic prison. Even if they wanted to leave the country, they can’t, because they can’t get rid of their properties. This means that the people who really are free to leave are young people who don’t own anything – which is even worse. Actually, that is one of the greatest fears around here these days – that people will emigrate en masse and this country will lose some of its best and brightest citizens.

This, too, is part of our current reality, along with Advent concerts and shopping.

And speaking of prisons, how about that inmate who placed an ad in Morgunblaðið today, announcing the death of a fellow inmate, so he could collect donations in his name [see today’s quote in the sidebar]. Shall we give him C for Creativity? Or simply F for F*ckwit?

ALL OUR SNOW IS GONE
And the Yuletide spirit along with it. Boo! Right now we just have a dark, gloomy, overcast day, albeit with pretty coloured lights everywhere. It’s set to freeze again, though, and a storm is forecast to blow through here tonight and tomorrow. Yowsa! Currently 6°C [43F], sunrise was at 11.08, sunset due for 3.33 pm.

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  • PhilippeP December 10, 2008, 2:03 pm

    “…EPI is one of the myriad workers who were laid off and then hired back with a reduction in salary….”

    There should be a way to do the same thing with a bank account when you’re broke, just change for one with plenty of money on it 🙂

  • Jessica December 10, 2008, 2:49 pm

    Hey Alda, how does it work here when people decide to turn their houses over to the banks for auction? Is it the same as in the US, where the person ends up owing nothing after relinquishing the property? (Albeit they get a big, fat scar on their credit score in lieu of owing nothing…) Or do Icelanders that give up homes still have to pay the balance of the mortgage if the sale from the auction comes up short? Sadly, I just don’t see how the supposed “homeowner help” set up by the Icelandic government is going to do much at this point. It’s the same story in the US — banks which were given bailout money are now hoarding the cash and in many cases refusing to reset interest rates for homeowners.

    You’re right — it’s the one time in history when being young and lacking assets is a good thing!

  • Lissa December 10, 2008, 3:19 pm

    Jessica, in the US, they auction off the house and then come after you for the difference. Forever. The rules were changed a couple years ago.

    What kind of personal bankruptcy system does Iceland have, if any? I’ve heard the social safety net has been cut down the past 20 years or so.

  • Jessica December 10, 2008, 3:44 pm

    Lissa – Yikes. Remind me to never, ever buy a house. Also curious about Iceland’s bankruptcy system too..

  • mary December 10, 2008, 4:54 pm

    Times are tough and they are getting tougher here in the UK, though more slowly and stealthily than in your country.
    When I shop in Tesco’s I can’t resist the lower prices if you buy two, consequently I end up spending more that I need to (greed is a terrible thing!).
    And home reposessions are on the up, but where do those poor people go to live then?
    I’m sorry to hear about your and EPI’s situation but we will all get through this.

  • Roy December 10, 2008, 5:03 pm

    I sure hope they have a closed casket. I wouldn´t enjoy the coffee and cakes afterward if they didn´t.

  • James December 10, 2008, 5:30 pm

    Remember the economic elephant in the room: the krona is now worth twice as much in Iceland than in other countries! When Iceland’s currency restrictions are eventually removed and Icelanders realise the real value of their income and assets, Haarde and Oddsson may finally be forced out…

  • Marc Scot December 10, 2008, 5:38 pm

    Happy to read that the krona float is going well so far. And yes things in the UK are looking less than fun as well. Poor Woolie’s (Woolworth’s) is either closing stores or offering deep (50%) discounts., and there is still the minor matter of who’s going to pay for all the banks London keeps buying!

  • Sigga December 10, 2008, 10:09 pm

    alda, I choose to ignore the cost – it was the only way that I could cope here when I moved from Germany. Figured that I had made my choice to live here and if living here meant putting up with the prices then cést la vie. I took a huge pay cut coming here, on the first of October as the crash was happening, I resigned my fairly well paid job, I, luckily, have been offered another job (I didn´t even bother to ask what they were paying) I figured again – this is the life that I want and I will make the cut of the suit according to the fabric that I have. Life is good, this is a beautiful country and I love living here – even if all the powers that be are useless, mad or just plain evil. The things that matter more are family, home and environment.

  • hildigunnur December 10, 2008, 10:24 pm

    We’ve been buying the clementines, in spite of the ca. 800 krónur 🙁

    You can’t just hand in the keys here and not owe anything, that’s for sure. Just like Lissa says, about the US. And you can’t just move abroad, your loan history follows, the banks know what they’re doing…

  • Muriel Volestrangler December 10, 2008, 11:54 pm

    It seems that, contrary to popular opinion, that islands are not such happy places after all. Alcatraz, Elba – criminal prisons, Iceland – debtors’ prison, Maldives – soon to be underwater, Ceylon – civil wars, Cypress – civil war, Haiti – poverty and famine, Madagascar – poverty, Pitcairn – creepy stuff, Greenland – alcoholism and boredom, Sicily – mafia, Cuba – poverty and hurricanes, Fiji – coups, Samoa – obesity, Japan – stagnation, Britain – soon-to-be “Iceland Mark II”. There are of course a few “happy isles”, Bermuda, Bahamas, Hawaii, Tahiti, Mauritius, but they seem to be exceptions to the rule.
    I notice that the lucky ones don’t wear long trousers and have colorful shirts and favor rum-based drinks — maybe the Icelandic government can implement a law requiring these. It can’t be any worse or more bizarre than any of their current policies.

  • Magoo December 11, 2008, 2:09 am

    Always check facts on sensational stories, like prisoners capitalising on fellow prisoners’ deaths. Prisoners usually have families, too, who more often than not are not of the monied classes. The death notice appears to list family, do donations go to them, or to who placed the notice?

    Eh? Magoo

  • Gogmagog December 11, 2008, 4:50 am

    Lissa, there isn’t a single system of mortgage regulations in the US. Mortgage contracts are controlled by the states. In several states, California for instance, if you owe more on the mortgage than the house is worth, you can simply turn the keys over to the bank. The bank can’t come after you for any more than the house. Your credit score is shot, but thats about all. Most primary mortgages in the US are “Non-Recourse Debt”, which means the banks have no recourse except the collateral.

    If you have a second mortgage, or a Home Equity Line of Credit, the bank can still come after you in most states for those loans, but not for the first(primary) mortgage. Some states also treat refinances of mortgages like second mortgages.

    Basically, there is no single, nationwide, standard for mortgages in the US.

  • Rozanne December 11, 2008, 6:53 am

    Well, maybe just buy a dozen or half a dozen clementines instead of a case?

    You are very lucky not to have debt. Most Americans carry massive amounts of debt and have no savings to speak of. I am waiting for the shit to hit the fan.

  • Rozanne December 11, 2008, 6:54 am

    “Lucky” is probably not the appropriate word–I’m sure the fact that you and EPI don’t have a lot of debt is mainly to do with the fact that you aren’t extravagant and don’t live beyond your means.

  • Ljósmynd DE December 11, 2008, 8:37 am

    It is sad to see Iceland attributed like this. I would hope that those people, who are free to leave and can take on a job abroad, are not lost for the country as they have family bonds and will certainly contribute to the rebuilding of the economy by transferring funds back home. And many of them will return to Iceland eventually.
    I definitely feel sorry for those who are carrying a heavy debt burden but the record-breaking household debt to income ratio of more than 200% shows that something got out of control on a broader scale. Pure optimism without proper calculations may end in a cul-de-sac.
    I feel most sympathy for those people, who did not live beyond their means and are now facing the loss of their savings.

  • Roy Roesel December 11, 2008, 9:13 am

    Well we all know that Mr. Magoo had a vision problem. It seems to be a family trait!

  • SOe December 11, 2008, 10:28 am

    I could say the same thing like Sigga – I´m in the same situation.
    For the young people – going uproad is not a real option for everyone at this time because you hear from all around the world that people are losing their jobs due to the financial crisis.

  • alda December 11, 2008, 10:57 am

    Hey everyone – thanks for your comments!

    I’m not sure if it’s legal to turn your keys over to the bank or mortgage fund, but it’s definitely something you would not do lightly because, as Gogmagog points out, it bulldozes your credit rating. And that reaches out beyond the borders of this country.

    Hildigunnur – yes, of course you’re still buying clementines – what else can we do but suck it up and pay? :-/ I wound up buying a handful (as Rozanne suggests) but decided to leave buying the case until we do our weekly Bónus run.

    Sigga – my sentiments exactly. I, too, moved here from Germany and I knew I’d be paying a lot more for everything. That was just part of the package. And to me, living in this beautiful environment that despite everything is basically safe and supportive, is invaluable.

    Rozanne – yes, I agree, we manage money sensibly (at least I do … EPI tends to be a bit more extravagant!) and of course we have a mortgage like most people, but it’s financed by the State Mortgage Fund, which means reasonable interest rates, and it’s in Icelandic kronur.

    Ljósmynd – I think the people who go abroad aren’t necessarily those who go abroad to work in order to send money home, as it is in many other countries. These are mostly young people who are starting their careers and simply choose to make their lives abroad. Also, a large portion of people who are graduating from university abroad – Masters and PhD programmes – decide not to come home. To say nothing of high-income specialists who are recruited by foreign companies or organizations – MDs for example. Also, the people who are left behind are not necessarily destitute, they’ll just have to struggle a little bit, but not to the point where they have to accept money from, say, relatives overseas. It’s more the brain drain we worry about, and also that those who pay into the pension funds that will sustain the current middle-aged population, will vanish.

  • Roy December 11, 2008, 12:51 pm

    The price of aluminum has dropped like a rock, more than 60% of the herring schools and an unknown percentage of the haddock are infected with a parasite and the krona is getting stronger against most currencies. What´s wrong with this picture?

  • Andrew December 11, 2008, 1:46 pm

    Are you buying any of the following!?

    http://www.google.com/hostednews/ukpress/article/ALeqM5iVm35wd9zXyNFUAHCyKryCNLBduQ

    Iceland is paying the price for its role in adding to the world credit crunch by being forced into an austerity Christmas.

    Among the things now selling briskly in the capital Reykjavik are horse meat, second-hand clothing and used DVDs of “The Sound of Music.”

  • Sigvaldi Eggertsson December 11, 2008, 3:21 pm

    Andrew, the reporter went to the Kolaportið, the flea market, and there is always brisk selling in horse meat, shark etc. second hand clothing and used CD´s there, that´s one thing that has definitely not changed.

  • Muriel Volestrangler December 11, 2008, 3:31 pm

    I see in the news that the giveaway of the country is quietly proceeding. Apparently Iceland will try to join the EU, and an Icelandic minister said that he was pessimistic about retaining the 200 mile fishing limits. That means the fishes will fall into the hands of foreigners. In the past few days the Icelandic government said that foreign creditors will probably a majority interest, not a minority interest in the new banks. That means that foreigners will get ownership of a very large portion of Icelandic businesses and of Icelanders’ personal debt. And much of what has not been given away has vanished into thin air. Aluminum prices have crashed and so has the value of the smelting plants and their energy. House prices will fall by 50%, says the government. And finally, the Government plans to steal as much as they can from the old people. Haarde says that Iceland’s budget deficit of $1.5 billion will be financed by the pension funds buying (worthless) ISK bonds with their foreign currency. Incredible – it really is worse than bankruptcy, as the Icelandic professor said.

  • alda December 11, 2008, 3:45 pm

    Andrew – what Sigvaldi said. It’s not an accurate picture, along with most other things reported in the foreign press.

  • Chris Cook December 11, 2008, 10:07 pm

    Here was me thinking that you Icelanders were unconventional.

    What makes you think that mortgages are necessary? They may be conventional, but they’re not necessary.

    It’s quite feasible to convert mortgage loans to a new form of investment, so that your pension investment funds can invest in something low risk and useful – like affordable rentals for Icelanders – instead of in Wall Street and City fat cattery and scams .

    Here

    http://www.feasta-multimedia.org/2008/Chris_Cook.mov

    is how it all went pear-shaped, and how you can get yourselves out of the shit.

  • john haskell December 11, 2008, 11:23 pm

    Lissa above is completely off base. The vast majority of first mortgages in the US are non recourse to the borrower.

    As for Alda’s scenario, the more people decide to walk away, the more sense it makes to walk away. The bank takes over more houses, the price of houses falls, the difference between the amount you borrowed to buy your house and the value of your house on the market grows. So if you think a lot of other people will walk away, walk first. Your house will sell at a better price than the latecomers so you will have less of a problem with the bank. Then turn around and rent similar space at a huge discount.