Posted on 02/04/2011 9:12:22 AM PST by SeekAndFind
On his second day as head of Iceland's third-largest bank, Arni Tomasson faced a crisis: The bank was out of cash. "Everybody was panicked -- depositors, creditors, banks around the world."
Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country's banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.With the economy projected to grow 3 percent this year, Iceland's decision to let the banks fail is looking smart -- and may prove to be a model for others.
three banks had become the largest companies in Iceland, creating thousands of well-paid positions and controlling the top trade associations, says Oddsson, who oversaw the privatization of Iceland's state-owned lenders as prime minister. Their headquarters were the largest buildings in Reykjavik, dwarfing the parliament.
"Nobody wanted to listen when the party was on," says Oddsson, 63, now editor of Morgunbladid, one of the largest dailies in the country, with a circulation of about 50,000.
It was Oddsson's decision not to build up the central bank's foreign currency reserves from 2005 to 2008 that made a bailout impossible.
"They were collecting debt in such a fast pace, it would be stupid for us to build a mountain they could lean on if they failed," Oddsson says. "The creditors that were lending to the banks recklessly had to face the losses."
"Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks," says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York.
Van der Knaap, who has advised Iceland's bank resolution committees:. "Even Irish banks aren't too big to fail."
Today, Iceland is recovering. The three new banks had combined profit of $309 million in the first nine months of 2010. GDP grew for the first time in two years in the third quarter, by 1.2 percent, inflation is down to 1.8 percent and the cost of insuring government debt has tumbled 80 percent. Stores in Reykjavik were filled with Christmas shoppers in early December, and bank branches were crowded with customers.
“There is no way that any economy would survive the $60 trillion in made up paper of CDOs that our banks would be on the hook for. It still may very well bring down the entire house of cards.”
Yet $60T is less than 5 times GDP. In Iceland, the amounts owed were 11 times GDP, yet somehow their system DID survive and now appears to be doing far better than ours. I’m not a financial person, but in a bankruptcy, real wealth doesn’t disappear. All that happens is that the true assets of a corporation (or person) are brought back to reality. In a bankruptcy, I presume a bank would have had no trouble selling off genuine assets to another bank: those assets still would have had value. What they could not do is sell inflated assets. It would have to “eat” these losses meaning creditors would get paid back possibly pennies on the dollar for the worst loans. That seems a far fairer resolution of the problem than handing off the bad loans for taxpayers to absorb the losses.
Of course the 4th quarter US GDP growth rate was 3.2% annualized, greater than than the 3% listed here for Iceland. So does the author have a point? He pulls one statistic out of the air, and then follows it up with a couple anecdotes: stores had Christmas shoppers, banks had customers! There’s nothing said in here that proves there to be any differences in the economic outlook of the two countries.
We need some of that here. LOCKEM UP! When I start reading about lots of banksters committing suicide after being charged or supoenad, then I’ll know we’re on the right track.
Yup. Something lots of the 'Default, and let God sort them out" crowd seems to forget.
“Our model beats theirs. We bailed our banks with taxpayer money and the bank execs are thriving: “All-Time Record: Wall Street Compensation Hits $135 Billion”
Oh goody life long democrat Lloyd the Vampire and obama’s favorite banker Jamie Demon will have more money to give him next time around.
Barack’s Wall Street Problem is Now America’s
http://www.noquarterusa.net/blog/2008/09/21/baracks-wall-street-problem-is-now-americas/
JPMorgan CEO Jamie Dimon Donates Serious Cash to Democrats
http://www.opensecrets.org/news/2009/07/jpmorgan-ceo-jamie-dimon-donat.html
The Icelander’s brought out the torches I think we should have too overwhelmingly people said no to the bail outs but our voices were not heard. Makes you wonder who the politicians were representing?
“When you factor those loans in, along with the cost of a foreclosure prevention program, taxpayers have only recouped $274 billion out of a total $410 billion. Treasury isn’t expecting to make all that money back. It recently estimated a final cost to taxpayers of $48 billion for the entire program.”
http://money.cnn.com/2011/02/02/news/economy/tarp/index.htm
Funny how the mainstream media only cover’s a part of how much we are still bailing out the banks and the true cost to taxpayers. I’m surprised they even put that part in way at the bottom of the article as it is but here’s another way those banks that own obama are still being bailed out by our tax dollars.
http://www.reuters.com/article/2010/01/05/us-usa-housing-bailout-idUSTRE6044YU20100105
More on how well Iceland is doing now link only...
“We ought to remember.... Iceland’s banks weren’t the cause of the mess, our banks were.”
Those are big global sharia backing, obama backing banks not our banks really we don’t own them. Hundreds of our own small conservative banks were wiped out they didn’t get the same deal as the big global banks did through Tarp.
Those banks did the same thing in Ireland they wouldn’t need a bail out at all if not for the banks bad debts. If we truly were Capitalists they would have been allowed to fail and should have been allowed to fail. Now they continue to suck off the taxpayer teat by offloading their bad loans unto taxpayers through the GSE’s.
They hurt a lot of investor’s too and Pension funds/401k’s invested in MBS’s and no one is bailing them out.
Banks accepted and bundled ‘deficient’ loans
Mortgages rejected by due-diligence firm were lumped in, crisis panel says
“Iceland essentially paid off domestic depositors by stiffing their foreign counterparts - possible because of the large relative size of the latter’s deposits.”
Wow imagine a country that actually took care of their own people first sounds good to me.
It was not the people’s debt to begin with it was the banks debt so the people didn’t stiff anyone the banks did.
Business’s fail to pay all the time for example how about all the CRE loans going belly up. It’s the cost of Capitalism if they fail they fail the Banks write it off. If that is true of all other’s it should have been true for the banks.
“Construction loans made up more than half of the total, at $391 million, while commercial mortgages contributed $209 million, or 29% of the total nonperforming pool.
Bad residential loans, by way of comparison, made up $90 million in nonperforming loans.”
http://www.housingwire.com/2011/01/31/cre-extend-and-pretend-reaching-breaking-point
Iceland is a poor parallel with the US situation, and the US commercial RE crash is a minor problem in comparison with the US residential housing crash. Currently 20-25% of US households are underwater on their first mortgages and Deutsche Bank’s analysts predict that it will peak at 48% - the result of a projected decline of residential housing values of 41% from peak.
And that does not count indebtedness from secondary financing such as HELOCs.
This is an ongoing slow-motion economic catastrophe for working and middle class Americans for whom home equity was a primary store of wealth - especially as many have substantially spent down retirement savings in an attempt to deal with unemployment and/or resetting ARMs.
Essentially you are talking about one-half of previously solvent homeowners potentially losing their entire net worth - and just *try* to “start over” in this economy (or the likely economy of the next decade), difficult for any wage earner, but almost impossible for most people fifty or older.
Worse, how to straighten this out raises deep questions of personal responsibility and social equity, and one’s which often do not have easy answers.
As someone who acted responsibly when presented with the opportunity to misbehave financially I don’t like the prospect of bailing out the banks (for example, by improving their balance sheets by artificially increasing the difference between what they pay me in interest on savings and the rates at which they loan) or bailing out my neighbor who is teetering on the edge of foreclosure because she thought that in an ever-rising housing market the option ARM she signed was effectively a rental with an option to buy.
But I also don’t like the prospect of a general collapse business confidence, or that over the next few years a third of the houses on my block may be standing, deteriorating and vacant, for years at a time while the banks foreclose on them.
But what I like least of all is Government and a financial sector which are equally complicit in a policy of pretending that “it’s all going to work out”, while shifting the ultimate financial burdens in ways which are going to greatly accelerate the ongoing and accelerating upwards redistribution of wealth to an already over-powerful Proprietorship.
“But what I like least of all is Government and a financial sector which are equally complicit in a policy of pretending that “it’s all going to work out”, while shifting the ultimate financial burdens in ways which are going to greatly accelerate the ongoing and accelerating upwards redistribution of wealth to an already over-powerful Proprietorship.”
I agree it’s very disturbing and disheartening to realize our middle class is being dismantled. It was a bit shocking to me to read that income inequality has fallen dramatically in the United States. Growing up my memories vividly include learning how America’s middle class were viewed as rich around the world.
http://econproph.com/2011/01/29/income-inequality-worse-in-us-than-egypttunisia/
My children thankfully did not get caught up in the debt trap either, though when my daughter was buying her first home I had to talk long and hard to her not to take one of those loans. Now friends of theirs have since lost their homes and she has thanked us. I am confident they have learned from this. I am older now and we have lived prudently it is my grandchildren that I fear for.
Yup. For all the complaining about the economic and political attacks on the "wealth producers", the objective evidence is that they are steadily increasing their share relative to everyone else.
If "a rising tide was lifting all boats", the way it did for the first 35 years after WWII that might not be a cause for concern - the deal in the US has long been that people accepted relative high inequality as the price of higher opportunity - but for the last 25 the income share for everyone else has been essentially flat or declining.
Productivity keeps going up, but the results do not seen to be "trickling back down" - the present arrangements are certainly "working", the questions is "for whom?"
Now, we have this situation where large numbers of previously solvent families have a greatly reduced or even substantially negative net worth, with little prospect of improvement for years, and with disastrous effects if they have to sell their properties in the meantime. And that's going to produce yet *another" major wave of upwards redistribution.
A lot of people here dismiss that as he natural effect of "the market", and suppose that it makes no difference *how* great inequality becomes - they have read their Ann Rand but not their history, suppose that the everyone outside the Proprietorship will eternally believe the same, and complain that it's just the "envy" of whiners and losers who complain of "the rich" because they have failed to become rich themselves.
"Envy" might be a reasonable term for the feelings of someone with a 1,200 sq ft ranch for someone else's 12,000 sq ft mansion (though BTW I have personally *never* heard the same expressed by anyone I know, anywhere on the political spectrum) - but IMO it is hardy a reasonable description of the feelings of someone who has lost their job and their healthcare, and finds they now face medical bankruptcy, for a someone who will never have a day's worry about paying for their medical care.
Still, many people cruse right on assuming that Americans will never have anything in common with the middle class citizens banging their pots together in an Argentinian cacerolazo, let along with a college-educated Egyptian joining a mass protest because his or her degree will not find them a job a family can live on, while the ruling cabal skims the cream off the top.
Perhaps not.
Buy if so, it will only be because we have a functioning representative government which will reverse current trends before we get that far.
Put them to work cleaning-up volcano damage.
It'll probably be the first honest work they've done in their lives.
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