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So this is the wall of shields they promised

Apropos the discussion that evolved from the postscript in the last post, it just so happened that current affairs programme Kastljós did a segment this evening on home foreclosures and auctions after the meltdown.

Some stats: In 2007 there were 175 auctions of homes [UPDATE: and retail properties] that had gone into foreclosure. In 2008, the year of the meltdown, they were 259. In 2009 they were 373, and by 1 September this year there had been 425 auctions. If that same trend continues, the number of auctions will be 580 for the full year 2010.

One of the election slogans of the Social Democratic Alliance, which forms the coalition government now with the Left Greens, was to form a “wall of shields” [skjaldborg] around the households in this country. Consequently many folks were hopeful that their situations would improve when this current government came into power. However, the various measures that have been implemented have been harshly criticized for falling abominably short of their goal.

Kastljós had one such example this evening. It interviewed one Magnús Magnússon, a filmmaker, who was diagnosed with leukemia a few years ago and is on heavy medication that renders him unable to work. His house, which he purchased in 2001, went into foreclosure last August. He had been paying around ISK 100,000 per month on his mortgage. He had also taken out a currency basket loan to buy a car, and of course we all know what happened with that when the krona collapsed.

Anyway, so his home went into foreclosure. With a new measure implemented by the current government aimed at helping people who are losing their homes, he was given the option of renting his home for up to 12 months from the credit institution that now owns it. The rent is determined by the property value of the house, which rose astronomically in the real estate bubble during the boom. The rent Magnús would have to pay for his home is about three times what he was paying for his mortgage, or some ISK 300,000 per month.

The mind boggles.

First after the collapse, he did as people in his situation were being urged to do, to speak to the Ráðgjafastofa heimilanna — a government counselling centre for people who are in trouble due to debt. They told him that his property was so valuable that there was nothing they could do for him — they had no measures to help him. The only thing they could suggest was to sell his house — at a time when the real estate market was frozen solid.

Magnús, who is not a young man [I’d guess in his early 60s] says he can’t manage to rent either, so he will now have to go live with whoever he can find to put him up.

Another statistic presented in the segment this evening: 40,000 households in Iceland are currently having trouble making ends meet. That’s pretty hefty in a country with a total of something like 100,000 households [I tried to find the exact number online last night but without success — but a few years ago I recall they were somewhere between 90-100,000].

Having spoken to Magnús, the Kastljós team moved on to interview the new Minister for Internal Affairs [which incorporates welfare] — Ögmundur Jónasson. He’s from the Left-Greens and is one of the more outspoken and radical ministers, and many people have high hopes that, with him in office, things may become slightly more humane.

There wasn’t much concrete that came out of the interview with him, but he made one comment that sent a shiver down my spine: that the International Monetary Fund frowns upon the measure of allowing people a 12-month grace period in which they can rent their homes.

Which is pretty goddamn terrifying if you ask me.



Comments on this entry are closed.

  • Easy September 23, 2010, 12:17 am

    Like somebody posted in the last Post, Do people really spected that nothing would happen after a collapse of the magnitude of the one that hit us? off course there will be foreclosures, and bankruptcies and family bankruptcies, what else can happen? unless they wipeuot everybodys debt but that’s not going to happen. This is just the beginning and to even start seeing some sort of recovery will take at lest a decade.
    By the way Ögmundur is not going to change anything, like I have said it before, they are all one and the same.

  • Bromley86 September 23, 2010, 1:09 am

    >the International Monetary Fund frowns upon . . . Which is pretty goddamn terrifying if you ask me.

    Well, on one very real level, it’s their money.

    Not that absolves the current government of their total, absolute mishandling of the situation. Would the IP have been any better? Two years ago I’d have said “Of course not”, but now I just think they’d have been as bad.

  • Spyder September 23, 2010, 3:15 am

    You make it sound as if the IMF is the problem. Well, the IMF is the tool of the international financiers and certainly not your friend, but the root cause of the foreclosures is: 1) the asset bubble (and subsequent crash) created by the Independence Party, and 2) mortgage and bankruptcy laws and policy in Iceland.
    As for #1, Icelanders can take out their anger at the voting booth – but about 40-45% of Icelanders still vote for the “evil parties”.
    As for #2 — there’s nothing inherently wrong or unjust about foreclosures. If you signed up for too much house and can’t make the payment, then you should have to give it back to the bank. The problem is the deficiency judgment that results when the bank in Iceland sells the house. In Iceland (unlike in the USA), the former homeowner must pay back to the bank the difference between the price of the note (the mortgage) and the selling price at foreclosure. The difference can be substantial. And because the debt can’t be wiped out in bankruptcy, since Iceland has no real personal bankruptcy, the debt follows the person forever, until he/she crawls into their grave.
    Lilja Mosesdottir tried to suggest a change in mortgage law to forgive this debt, but no one followed her. So if you want to blame someone –point the finger at Althingi, all of the four parties and everyone but Lilja Mosesd. Althingi could have passed a law to change the mortgages. Althingi could have passed laws to reform personal bankruptcy. Instead, they have done nothing.

  • idunn September 23, 2010, 3:21 am

    The mind does boggle.

    • 2007: 175 home auctions.
    • 2008: 259
    • 2009: 373
    • 2010: 425, trending towards 580.
    – or –
    • 40,000 households in trouble, out of a total of about 100,000.

    These statistics speak for themselves, and impressive that you delivered them as succinctly. Not to mention the tale of poor Magnús Magnússon, and what he has gone through with leukemia, imminent foreclosure, and all the rest. It really puts everything into perspective.

    Not to mention the IMF. ‘Frowning’ upon someone effectively homeless and heartbroken having even the option of renting their (formerly) own house for but a year. The terms heartless and cruel come to mind.

    I know that for some people real estate is but an investment, even a house something they might gladly turn for a profit if the market agreeable. So any downside must be accepted as well. But at its most basic level a house is one’s shelter and survival, and home of place and affection. That should never be taken lightly, treasured for all the good it does any person, family, and society.

  • andy KJ September 23, 2010, 10:16 am

    The aim of the govt, which can actually do very little, is to put off pianfull decisions until circumstances force a change, to avoid immediate pain, on the basis that the only thing they have going for them is the hope that time will improve the situation.

    You cannot completely blame the Govt , as there is actually very little they can do.

    You can blame them for not using state controlled banks to nationalise the natural assets available – fishing rights – and so remove the funding for the clique who started the problems. These guys have a wall of cash that they want to repatriate to buy out the rest of Iceland that they do not own. Time to take control back?

  • alda September 23, 2010, 10:47 am

    @ Spyder — how does a brief mention of the IMF in the post constitute me “making it sound like the IMF is the problem”?

  • kevin oconnor,waterford,ireland September 23, 2010, 11:27 am

    Must be one hell of house to warrant €450 thereabouts a week in rent,reality check people some folks dont get that in take home pay after tax, 100,000 krona a month rent for a place is plenty enough, it is lucky that your krona did collapse in a euro sense making that flat for 100,000 vaguely acceptable, ties in with your former reputation as one of the worlds most expensive countries, which is strange really as I dont buy the it has to be imported excuse, some very strange rip offs are happening up there across a whole slew of goods and services particularly in the supermarket department, I pay the same or less for Cod than you curious ?

  • alda September 23, 2010, 11:34 am

    How much DO you pay for cod, Kevin?

  • Bromley86 September 23, 2010, 12:27 pm

    IANAKevin, but cod in Tesco UK costs £8.70/kg fresh, 6.67/kg frozen. That’s for 400-500g packs and it’s the normal, non-reduced price.

    I wouldn’t be surprised if that was cheaper than Iceland, but then that because I already know that New Zealand lamb is cheaper in the UK than in New Zealand 🙂 . And that’s both before and after the GBP crashed against the NZD.

  • Ari September 23, 2010, 1:05 pm

    Alda, the brief mention of the IMF comes at a point in your story that makes it sound as if you have hit upon the explanation for the gov’s inaction on said skjaldborg. Particularly since the brief mention is then followed immediately by “Which is pretty goddamn terrifying if you ask me” suggesting that what you found terrifying was the presence in country of these heartless international bureaucrats.

    The “problem” in Iceland is that everything is frozen. There are a handful of foreclosures (really if the 40k families in trouble number is correct then 400 foreclosures is a handful) but most people just continue to stew in their completely untenable situation. Consequently, nobody moves on and starts the process of recovery. This is very much true of the rest of the economy as well. Yet, there has to be a correction one way or another.

    Magnus’s story may be pitiful but if he can not afford his house (and I expect keeping up with the mortgage payments is only one of many insurmountable financial problems he faces) then he is not helped by being allowed to stay but with his live on hold. The solution to his problem is not stay in the house and be allowed to ignored his debt. That is just a way of transferring the consequences of his past decisions onto society without enabling him to move on. Even a write down of his debts to sustainable levels that does not include him giving up his biggest asset (the house) is just a very unjust way of transferring his problems to all of us.

    As a society we need to move on and start the rebuilding. That includes a bankruptcy code that actually provides proper relieve to the bankrupt (as opposed to this very unjust limbo we have now) so that people like Magnus can get a clean slate. But there has to be some sort of reckoning for those whose debts are insurmountable so expect repossession people’s houses to continue.

  • Michael Lewis September 23, 2010, 2:03 pm

    “was to form a “wall of shields” [skjaldborg] around the households in this country”

    Anyone ever hear of King Canute in Iceland? The most pointless thing is trying to hold back the tide.

    You can’t keep a bubble inflated. Too much credit, prices too high, prices have to come down or (and usually and in some cases) the currency gets debased.

    Many countries face the same problem, rather than pile more debt up trying to prop up real estate , its better to simply let the cost of houses fall. Provide help to those that need to sell (some will sell at a loss).

    ” … frowns upon the measure of allowing people a 12-month grace period in which they can rent their homes.”

    for the damn good reason you don’t solve the problem of too much debt and consumption by more debt and consumption.

    The morally bankrupt alternative is that you tax savers or those relying on fixed incomes (pensioers, very young families wanting to buy their first home) to bail out those that over extened themselves.

  • RLJ September 23, 2010, 2:59 pm

    Alda, can you confirm? I just watched the section and I thought those numbers were BOTH business premises and homes.

  • kevin oconnor,waterford,ireland September 23, 2010, 2:59 pm

    @Alda I pay €5 a kilo however that is cheating because I only ever shop at Aldi or Lidl(thank god for Germany) if I went to TESCO I would have to pay €11 a kilo, which I never do given my current status of poor white unemployed trash, 50 this November 🙂 So beat that Alda and I will send you a jar of your favourite pickle for christmas.

  • goupil September 23, 2010, 3:20 pm

    True there maybe some responsibility from the borrower but he acted on advice from the bank and the bank makes a mistake in asking way too much for rent. In the end the bank in trying to come whole will be left with a hulk and will go bankrupt maybe.

  • alda September 23, 2010, 3:25 pm

    @ RLJ — yes, that’s correct. It’s both.

    @ kevin — well I can beat that in price — but not in low price. I’m not sure of the exact price, but I think fresh cod retails for around ISK 2,000 a kilo, which would be around 11 quid. So same as in Tesco (in Ireland at least — Bromley says he pays less).

  • Bromley86 September 23, 2010, 3:29 pm

    >Alda, the brief mention of the IMF comes at a point in your story that makes it sound as if you have hit upon the explanation for the gov’s inaction on said skjaldborg.

    Actually there’s a good chance that she’s right to have chills, in that there’s a good chance that the IMF have effectively forbidden any debt write-off solution.

    Below is a quote from Mike (UK Nordic Analyst) over on Icenews (how I hate the useless seach function there 🙂 ). He’s always appeared to know his stuff. I suppose it directly contradicts my first post, where I pin the blame for the inactivity on the government. However it seems to me that the government should have seen how this issue was going to end up and allowed those FC loans to be converted to ISK ones back at a time where they’d actually have managed to get a deal of political capital out of the situation, as well as mitigating the worst cases of stress.

    “The origin of this money (that which is now consumer debt in Iceland) is why the government is finding it almost impossible to write off, or reduce those debts (see the new arrangement for the foreign currency loans) – the money is owed to outside agencies not other Icelanders. Basically the government does not have the power to forgive those debts – the only option open to it would be to socialise the debts, but external countries (UK, Faroes, Norway, China, Holland, EU and the IMF etc) that have supplied money to keep the population from starving (and I am not exaggerating) have said that the money cannot be used to forgive debts within Iceland itself.”


  • Bromley86 September 23, 2010, 3:43 pm

    >Anyone ever hear of King Canute in Iceland? The most pointless thing is trying to hold back the tide.

    I must admit, when I first heard the Wall of Shields thing, I assumed that the government was’t talking about maintaining property values but rather about (effectively) socialising the worst of the losses.

    Was that the general understanding in Iceland at the time, or was it more like Michael says?

  • goupil September 23, 2010, 4:22 pm

    BTW Dried salted cod at Carrefour 10 euro 90 a kg

  • Michael Lewis September 23, 2010, 4:44 pm

    Icelandic Line caught Cod at Waitrose costs about 18 GBP,so 5,000 a kilo. I think you can get cheaper – Tesco is cheaper than Waitrose, but Waitrose is the best quality supermarket in the UK. Its also cheaper if you don’t mind something shovelled up by a trawler that is busy destroying the sea bed and making it hard for migratory Salmon and the like. Line caught means ‘hook to plate’ the fish can be traced and usually means an independent fisherman, making a living by non trawler fishing. There are plenty of other fish that people ignore , that are just as tasty, probably means a trip to a proper fish market though. Well worth it, if you are watching the pennies.

  • Matt Riggott September 23, 2010, 5:12 pm

    I think the data you want on households, or at least a close approximation to it, can be found here:


    There were 77,227 nuclear families in Iceland in 2010 — a nuclear family defined by Statistics Iceland as “couples (married and in a consensual union) and children below the age of 18, single men and women with children below the age of 18”.

  • mb September 23, 2010, 6:27 pm

    Interesting that they insisted on setting his rent at the bubble-inflated home value – it would seem like an easy fix to insist that these rent arrangements be done at a current market rates, but then that would probably cause the banks who own the mortgages to admit that the assets on their books as collateral for their loans was not nearly as valuable as their books say it is. And the banks have the politicians convinced that if they have to properly account for the value of all those home loans, they’d all collapse, and the politicians figure that would be bad, and once again you’ve got the banks running the government.
    The American solution would be to create a government agency to buy all the loans from the banks (using money produced by magic) so they wouldn’t have to worry about someone forcing them to adjust their value to the current market, and then the government could rent the houses to the owners at a reasonable rate. But I’m not sure how to do it in a country that doesn’t have the monetary magic wand that the US has.

    Perhaps the reverse of the mortgage backed security could work – get together the entire group of people who have mortgages in or near default with Bank I, and find a way to form a collective or corporation so that all the houses are owned by the Union of Borrowers from Bank I. Then pool what mortgage payments they’re able to pay, and pay the bank, applying the payments to an equal percentage of each mortage – so if they have 45% of the full cost of all the mortgages from Bank I, then each mortgage gets a 45% payment. Then, if Bank I wants to foreclose, they’ll have to foreclose on every single home they’ve issued a loan for, which would theoretically leave them in the position of owning and trying to sell something like 10 to 20% of the home inventory of Iceland all at once. Which would be financial suicide for the bank. In much of the world, the banks grew fat by lending to anyone they could find, and then pretending they weren’t at risk by chopping up the loans and selling them to each other in re-packaged bundles that sounded safe. If the borrowers could do the same thing – share the risk of foreclosure across ALL the borrowers, then maybe they’d have some leverage against the banks.

  • Kris September 23, 2010, 8:07 pm

    Let me try again…
    The IMF now runs Iceland. “Frowns upon” is a stern warning to get back in line (corporate speak). All gov spending will need to be approved by the IMF if it isn’t already. The credit institution that owns the mortgage is a wholly owned subsidiary of the IMF as is much of the country.
    I call it a loss of sovereignty. Self-determination is making your own decisions and that has been taken away. There is lots of money because of fishing and electricity. Society will keep on rolling, just rolling the IMF way.
    What people will need to do is go non-government (off the IMF books) for any social programs so that they bypass IMF approval. The Better Health Society, Friends of the Elderly, etc. The gov will be largely out of the picture as far as helping with social programs.
    Who is responsible? The fooler or the foolee? Was there no risk analysis by the gov or banks? Or was the downside acceptable?
    As a citizen, I would sue the gov for acting in bad faith. Countries (at least theoretically these days) are ruled through a contract between the governed and the governors. People have the right to assume that the gov is acting on their behalf. I see this whole mess as breach of contract by the gov and the bankers that put them into power. The effects you are witnessing are a consequence of that breach. It is their jobs to ensure that accepted risk does not have catastrophic consequences. That is how I see it. I don’t blame the people. Who doesn’t love easy money?
    I don’t think, sadly, that there are any more choices of any significance. Just do what the IMF wants and hope that it isn’t too horrible. Iceland is too small to stage a revolution. you’ll have to hope someone else does.
    Sorry to be so gloomy. I’ll see if I can get some cheap rose-colored glasses on eBay.

  • Bromley86 September 23, 2010, 10:14 pm

    >get together the entire group of people who have mortgages in or near default with Bank I, and find a way to form a collective or corporation so that all the houses are owned by the Union of Borrowers from Bank I

    Can’t be done. That’s unilaterally changing the parties to the contract. You’d need to pay of the mortgage to transfer title.

    Worse, in Iceland there’s apparently effectively no such thing as personal bankruptcy. So even if you formed an informal union and tried to blackmail the banks into changing the contract, they’d just tell you to bugger off, sieze the properties and chase you for the balance until you died.

  • sylvia hikins September 23, 2010, 10:26 pm

    What a Government could do is to provide decent social housing at an affordable rent. Lack of this forced many people into buying houses which left them without any capacity for cushioning future problems. So how is Magnus supposed to respond…sleep in the park, in Iceland, in winter! How about slapping a little surcharge on the profits made in the aluminium smeltering industry to set up a social housing building fund.
    sylvia from viking wirral

  • RLJ September 24, 2010, 10:40 am

    I suspect this will sound harsh, but Magnus needs to move into a much smaller, cheaper property. He is a single man and does not need a big farmhouse with large land estate – worth 70m ISK (approx 450,000 euros). The right to housing is a right to safe and adequate housing; not a right to any house you happen to set your heart on.

    I am more than willing to pay taxes to support families to stay in adequate accommodation. But why should all the families who have been renting cramped apartments for the past 5 years, at hugely inflated rental prices, be bailing out those who bought big houses that they now can’t afford?

    (I also think there is a bit more to this story; he bought his house in 2001; the boom took off in 2004, so for him to be in negative equity now it appears he must have borrowed against the house extensively later on.)

    mb: rental prices have not really fallen (mainly because the rental market is small and mostly private; and the owners are upping the rent to keep up with their mortgage payments on the same properties); it’s the renters who always get screwed and noone is interviewing them on kastljós or anywhere else. All this focus on securitised debts (cars and mortgages) does nothing for those on the lowest incomes who are least likely to have either.

  • Michael Lewis September 24, 2010, 12:40 pm

    “How about slapping a little surcharge on the profits made in the aluminium smeltering industry to set up a social housing building fund.”

    Thats the way to economic ruin , just look at what the Labour party did to Britain in the 70’s – pushed the country to bankruptcy and when it got back in power, it did the same.

    Its pointless to attack one industry. Social housing should come from general taxation with all people and companies taxed fairly.

    Punitive attacks on one industry, or in this case Rio Tinto Alcan – and that would leave Iceland in a mess.

  • Jonathan September 25, 2010, 11:24 am

    Can’t you just get rid of politicians in Iceland? I mean the poulation’s small enough. You could set another wonderful example for the rest of us. Think about it. You’ve managed to do away with media censorship. Hmmm… you might have trouble trying to keep out half the world’s population though!

  • sylvia hikins September 25, 2010, 12:20 pm

    Ok. Surcharge all industry. It´s called capitalism with conscience. And you know what…the surcharge need not be huge and certainly would not drive the global giants out of business.
    sylvia from viking wirral

  • RLJ September 25, 2010, 12:38 pm

    forget the surcharge; how about actually charging heavy industry the same rates as the general public for their power instead of giving them a massive subsidy.

  • Kris September 25, 2010, 3:55 pm

    The thing about the IMF is that they will be demanding “structural reforms” in order to continue sending money. As far as I know high taxes and social programs are frowned upon, to say the least!
    These loans should have a specific set of requirements. Does anyone know what they are? There should be a written contract somewhere.
    I googled IMF austerity program. Ouch!

  • D_Boone September 25, 2010, 10:21 pm

    Good discussion

    As usual we go have to refer to Mike (the Nordic Analyst) for the “truth” re IMF’s involvement.

    The country has to move forward, both sides (banks and behind them the bond holders) and those with the underwater loans have to accept reality. A long time ago it was suggested the best method was to transfer the debt into equity where land is involved and people could not service their loan. This means whenever the property is sold both parties share in the profits or losses. Some obviously are so far in debt that they have to lose their houses. It happens regularly in other countries. However the archaic bankruptcy laws also need revised.

    The alternative of course is a real revolution. Nothing like a few people hanging from lampposts to make the lenders realize they may not get their money back.

    As an aside lamb in the Icelandic supermarkets is now typically cheaper than New Zealand. This leads to stories like this http://tvnz.co.nz/national-news/police-find-stolen-sheep-crammed-in-car-3573383

  • Bromley86 September 26, 2010, 2:00 am

    >forget the surcharge; how about actually charging heavy industry the same rates as the general public for their power instead of giving them a massive subsidy.

    Obviously, someone who you can expect to use 1000MW a year might expect to get a cheaper rate than someone that is going to use 1MW (feel free to insert the correct figures 🙂 ), especially as the 1000MW chap is also employing people locally.

    However, if the “correct” adjusted rate has been tampered with, commonly by corruption, then you may have a point. Whether this is the case or not, the lack of transparency over the whole issue in Iceland creates fuel for the fire.

  • neil September 26, 2010, 11:29 am

    Foreclosures are at least likely to get the property market moving again. . No one is going to invest in Iceland for a highly risky and uncertain 5% rental yield – with landlord tenant laws that work against you, and the huge cost/expense/difficulties involved in enforcing rental contracts when things go bad.

    At the moment, you have a situation where the prices are being held up artificially to protect the position of households. But the prices have no basis in economic reality, nothing is getting sold or bought, only ‘swaps’. Most of the business, as I understand it, is at the bottom of the market – reposessions, auctions etc.

    Im not saying that they should allow an american style deregulation of the real estate market, but it makes sense the houses should at least find their actual value.

    a social housing fund is a good idea, but argualbly it already exists in the Housing financing fund. In any case, there is no need to build more houses in iceland, there are enough there already, maybe they could compete on the open market to buy up the foreclosures.

  • RLJ September 26, 2010, 3:14 pm

    @Kris: Look at the Letters of Intent for the general outline of the agreements. There isn’t a lot of detail, but Iceland is getting a much better framework than developing countries are used to; and probably a lot better than Greece is getting from its brothers in the EU.

  • Bromley86 September 26, 2010, 8:55 pm

    >At the moment, you have a situation where the prices are being held up artificially to protect the position of households.

    Not sure that the prices are being artificially supported. Rather if everyone with a mortgage is in negative equity and if the loss can’t be passed on to the bank, there’s just no movement in a market.

  • Kris September 26, 2010, 10:52 pm

    The takers get the honey and the givers sing the blues.
    RJL: I read it and it sounds very amicable and reasonable. I can’t say that I understand the financial details. I go by reputation and the effect the IMF has had on other countries to get a general impression. 300% gross debit in comparison to the GDP is still overwhelming. Add Icesave when they finally buckle under the pressure will add to that total.
    Also, the cynic that I am, I would not put them past low-balling their figures.
    One of the things I find offensive about this thing is how some of the major players are having their assets protected. The ownership of the FB is the most glaring. MM is stuck with his debit to the grave.

  • neil September 27, 2010, 4:33 pm

    – Not sure that the prices are being artificially supported. Rather if everyone with a mortgage is in negative equity and if the loss can’t be passed on to the bank, there’s just no movement in a market.

    Not everyone with a mortgage is in negative equity, otherwise things really would be beyond hope!

    The reason why I am saying that prices are artificially supported is because the biggest loan provider, the state owned house financing fund, is not really enforcing its debts and rarely foreclosing on properties. Therefore only a very few houses are being forced on to the market at lower prices. Therefore the valuations can be kept artificially high by the banks, making everyone appear wealthier than they actually are. This might work and of course it is preferable to a US style foreclosure crisis engulfing the entire nation, but of course at some point this situation will come to a miserable end and a correction will take place. But actually if you look at house prices related to incomes, they are still relatively low, so the correction might not be that dramatic.

    anyway, thats just my observation/take on the situation.