Iceland rejects plan to repay Icesave debts

[Lars77]

Source: BBC News

Voters in Iceland have overwhelmingly rejected proposals to pay the UK and the Netherlands in the wake of collapse of the Icesave bank.

With a third of results counted, 93% of voters said "No" in a referendum.

Iceland's prime minister says her government will remain in office and continue to seek a deal.

The British and Dutch governments want reimbursement for the 3.8bn euros (£3.4bn; $5.2bn) they paid out in compensation to customers in 2008.

Read more: http://news.bbc.co.uk/2/hi/business/8553979.stm

---

Why the hell should the Icelandic people pay back the losses of foreign investors?

[dkf]

1. Those werent investors they were depositors.

Iceland kept all deposits in Iceland whole and decided to let UK and Netherlands depositors suck eggs.

[Warren Stupidity]

5. The depositors have been paid off by London and Amsterdam

[dkf]

20. Because Iceland left them high and dry

No one should trust Icelandic institutions.

[PSPS]

26. These were uninsured accounts. They shouldn't "pay them back." The depositors freely took the risk.

[Confusious]

35. If you're rich enough

You never have to take risks.

[muriel_volestrangler]

36. No, they were insured; see posts #7 and #9

#7 is a typical explanation from before the failure of what the insurance was - the Icelandic government had a guarantee that was meant to cover up to €20,000 per saver; the British and Dutch governments had guarantees covering amounts above that. #9 is a blog post from an Icelander giving the current financial situation of the bankrupt bank, and what the arguments are.

The bank went bankrupt; the Icelandic fund was nowhere near enough to cover the guarantee for the €20,000, and the Icelandic government couldn't afford it either, so the British and Dutch governments stepped in and paid that too, and now want repaying for that. In the long term, the old bank's assets can be sold, and these will cover most, but not all, of the money that had been deposited, and it's agreed that that money would have gone to the savers, and so it should go to the British and Dutch governments who have paid the savers. The arguments are:

(a) Do you use the assets to pay off all of the €20,000 guarantee first, and then what's left over to pay off what it can for the guarantee for the amount above that (which won't cover all of it); or do you pay off the €20,000 guarantee and the higher guarantee in equal proportions (which, since the assets aren't enough to pay off everything, would mean that some of the €20,000 guarantee would have to come from the Icelandic government; if the 88% figure in the blog is right, that would be about €480 million, I think (12% of €4 billion) - about €1,500 per Icelander ). The Icelanders say the former is correct under their law, and it seems to me they have a good case for it.

(b) Because it will take some time for the old bank's assets to be sold, and the savers were already given their money back, effectively the British and Dutch governments have loaned the money to the Icelandic government/bank administrators. They are saying the interest rate on this is 5.5%; the Icelanders say it should either be a low interest rate (after all, the governments are lending to banks at low rates at the moment), or no interest should be paid (because when a company goes bankrupt, the creditors don't get to add on interest). Since this could drag on for years, the interest rate could be significant.

[PSPS]

39. Sorry, but you're wrong about that. They were uninsured.

It was the "top-up" rules that depended on the Icelandic Compensation Scheme.

Read more about it here: http://open.salon.com/blog/david_cox/2010/03/06/and_so_its_war

[muriel_volestrangler]

40. I've linked to the Icelandic insurance scheme

in this thread. It covers the first €20,000 for each saver. It doesn't 'top-up' anything. David Cox has got it wrong. Look at the links from Iceland I gave. Here's another explanation:

Savers with all UK banks will be compensated up to £35,000 under the FSCS. However some foreign banks operate in the UK work under a 'passport' system in which savers must seek compensation up to a certain amount from the bank's host country and then receive a top-up to the £35,000 maximum by the FSCS.

In the case of Icesave, savers would receive the first £16,300 from the Icelandic compensation scheme in the unlikely event the bank were to go bust, and then a further £18,700 from the FSCS.

As such a situation has never occurred before, a spokesperson for the FSCS told This is Money there is a chance savers may have to wait longer for their money if they have to apply to both a foreign compensation scheme and the UK service for compensation rather than just approach the FSCS solely.

Its states on its website: 'In the event of a failure of one of these (foreign) banks, the home state scheme would have lead responsibility for claims, and would pay the first part of any compensation. This might cause some delays in resolving claims, as FSCS may have to depend on information from the home state scheme before paying any 'top up' compensation.'

http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=439813&in_page_id=7

The Icelandic scheme was unable to pay the €20,000 (ie £16,300), so the British and Dutch governments had to pay it. They are now demanding the repayment of that, from either the assets of the bank of the Icelandic government.

Have you read the Icelandic links, especially the blog?

[DCKit]

2. Because the firms that stole the money are too big to fail.

Or the people who ran them took the money and ran. Either way, the depositors want their cash back and, if not the taxpayers, then who? It would take actual fortitude to go after the real thieves, taxpayers are a much softer target.

[HeresyLives]

3. Another country that could get tossed under the bus.

[izquierdista]

6. Pretty self sufficient bunch

Any people that can survive those winters on a diet of hakarl are not to be messed with.

[Warren Stupidity]

4. Go Iceland!

Tell the wankers to fuck off. That 3.8B Eu adds up to something like 12,000 Eu per Icelander, most of whom had nothing at all to do with the banksters who f'ed up.

[HeresyLives]

8. Yeah, not paying your debts is REAL clever.

[Warren Stupidity]

10. It ain't Iceland's debt.

The banksters that did this are to blame, not the people of Iceland. The banksters got rich and left, why exactly should the people of Iceland, which is now in a state of massive economic collapse because of this disaster, get stuck with the bill?

[HeresyLives]

11. Yeah it is.

Iceland lived high on all the money, 6X the GDP.

Now they've left the UK and Holland in the lurch for it.

[Warren Stupidity]

13. Not really.

Iceland is being handed a massively unfair deal and the people of Iceland have rightly rejected it. See the blog entry posted above.

[HeresyLives]

18. Iceland is responsible for it's debts.

Whether they like it or not.

No one is likely to loan them money ever again, and they can forget about joining the EU.

[northernlights]

22. even if EU doesn't collapse

and my guess is that sooner or later it will, who the eff would want to join it. :shrug:

[HeresyLives]

23. The EU isn't going to collapse

And it has countries lined up to join it.

[northernlights]

29. oh i think everything is going to collapse

including eu. and having companies lined up to join it doesn't mean squat. Look how many swamp donkeys line up at wallies world for that big annual sale. doesn't mean it's worth lining up to get in there, either.

[Plucketeer]

28. Well then!

I'm feeling alot better about bailing out Wall Street so their execs can receive the bonuses they so soundly deserve! After all, it's MY fault that they risked their necks.

[Fool Count]

42. No one? Really? Even if they decide to default on all their obligations,

not just the Icesave portion, they won't be the first country to do that. And of the previous
defaulters none has any serious problem with raising more capital in the international
markets. In fact, not having all that debt hanging over them made it much easier in
most cases. Not surprisingly, all the defaulters experienced long periods of strong
economic growth immediately after. So if history is anything to go by, Iceland will
have creditors lining up to loan it more money.

[liberation]

15. Having to pay made up money with real assets is much more "clever" ain't it?

LOL.

Debt and money are for the most part illusions. And people are stupid enough to fall for the illusion, and this rip off is nothing new... two thousand years ago they were having credit crunches too. And now, I guess all those bankers really do have the assets to back up the trillions in derivatives they made up. Right?

People need to start giving bankers the middle finger period. There are a few billions of people in the world, and how many bankers? Let the bankers get their "money" from the people, let'em earn it the old fashion way: by fighting for it. LOL

[HeresyLives]

21. A debt is a debt.

Same as when you put something on a credit card.

[fasttense]

37. When is a debt not a debt? When it is a Jubilee year.

And when The United States Government bails out Wall Street.

[PSPS]

27. These were uninsured accounts. They shouldn't "pay them back." The depositors freely took the risk.

[muriel_volestrangler]

7. There was an Icelandic government deposit protection scheme

but it wasn't big enough to cover all the savers.

Is Saving With Icelandic Banks Safe?

14 February 2008

...
Icesave savings accounts are covered by the Icelandic Deposit Guarantees and Investor-Compensation scheme. Under Iceland's scheme the first €20,887 (approximately £15,000) is protected in full. But savers also have a further guarantee under the FSCS which is limited to 100% of the first £35,000 less any payments made under the Icelandic scheme.

Meanwhile Kaupthing Edge deposits are currently held by UK company Kaupthing Singer and Friedlander Ltd and as such are protected entirely by the FSCS, which means they qualify for the same maximum protection of £35,000.

So, in other words, these accounts have exactly the same protection as UK deposits.

You might think that a claim made through a two-tier compensation scheme is bound to be more onerous. But Mark Sismey-Durrant, Managing Director of Icesave, suggests this isn't the case since the structure of the Icelandic scheme has the potential to settle claims more quickly than even the UK's FSCS. Indeed, the UK scheme has a full six months to deal with compensation claims (although this process is being reviewed).

http://www.lovemoney.com/news/manage-your-finances/is-saving-with-icelandic-banks-safe-2954.aspx

When the Icelandic government could not pay that first €20,000 or so, the British and Dutch governments stepped in and paid it. And then demanded that money off the Icelandic government. This is all about the terms of that repayment. The problem is that the number of savers in the Icelandic banks from the UK and the Netherlands is about the same as the population of Iceland, so paying up to €20,000 per account is a huge problem.

[UpInArms]

12. hmmm..... "scheme"

definition: a plan or program of action; especially : a crafty or secret one

[muriel_volestrangler]

16. That's a bit insulting about the Icelandic government

Here's the details: http://eng.idnadarraduneyti.is/laws-and-regulations/nr/1165

[3waygeek]

25. Note that the article is from the UK

In British English, the word "scheme" has no negative connotations -- for them, it's just a fancy word for "plan".

[On the Road]

30. Ah, So That Would be the Equivalent

of the FDIC not paying depositors of failed banks.

I guess we'll find how this works out. I don't know who is going to deposit their money in an Icelandic bank now, even Icelanders. Maybe they'll do fine without a financial system and just rely on EU banks. It's certainly a test case.

[muriel_volestrangler]

9. Here's a good, detailed blog explaining the situation

The Icesave Paradox: How can Iceland be against the current Icesave agreement, and still be absolutely committed to fulfill all its obligations?

...
According to Icelandic laws, the depositors will have priority to all LBI assets during the winding-up process. If we compare the total assets available with total deposits, it is clear that there are enough assets available to cover nearly all the deposits (1164/1319 = 88%).

As nearly all the Icesave depositors have already been paid out, it is actually the deposit insurance funds in each respective country that have taken over the original claims. These are TIF in Iceland, FSCS in UK and DNB in Netherlands. Furthermore, all payments to TIF will automatically be forwarded to FSCS/DNB, to cover the Icesave loans from those two funds. So effectively ALL bankruptcy payments from the LBI will always go to FSCS/DNB in the end. This obligation has already been fully accepted by Iceland without any dispute, irrespective of the Icesave agreement, as this is in accordance with the existing Icelandic bankruptcy laws and conventions.

2. So what then is the real problem with Icesave?

The problem is the actual agreement that was negotiated between Icelandic government and UK/Netherlands. According the 94/19/EC directive (which itself has a lot of problems we will not go into here), each deposit guarantee fund is required to pay minimum of 20000 Euros per depositor. For the Icelandic deposit insurance fund (TIF) this amount is actually a little bit higher or 20887 Euros, while UK and Netherlands unilaterally decided to pay considerably more. When all the depositor claims are added up, the total liability for TIF in Iceland ends up being 2.35B GBP for UK and 1.329B Euros for the Netherlands. To simplify, we will add these two amounts together and assume the total liability is instead 4.0B Euros.

If you compare the total liability of 4.0B Euros by TIF, with the total assets available 6.4B Euros by LBI, it is clear that it is more than enough to cover its obligations. Now we come to the crux of the problem. According to the current Icesave agreement, Iceland will only receive half of the recovery payments from old Landsbanki, and is therefore forced to pay MORE than just for the Icesave deposits!

http://bjarnimax.blog.is/blog/bjarnimax/entry/1003708/

[On the Road]

31. Ah, Thank You -- Now It's Becoming Clear

DU is great for this kind of thing. I never learned the details on what was going on in Iceland.

The referendum makes a lot more sense now. The people voted not to compensate the UK and Netherlands for unilaterally exceeding the deposit insurance limit. And to be honest, I don't why they should.

[Lars77]

38. And i guess the UK didn't make any more icelandic friends...

when they used anti-terrorism laws against Iceland, a military ally and friendly neighbour, to seize Icelandic assets in the UK.

http://www.bloomberg.com/apps/news?pid=20601102&sid=aXjIA5NzyM5c

[On the Road]

41. Wow -- That Was an In-Your-Face Move

From the link above, it wasn't even money that Iceland was obligated to reimburse.

[Lars77]

43. Exactly. So screw 'em i say. The Icelandic people have already suffered enough. nt

[Fool Count]

14. It can also be argued that since Icesave operated under

British and Dutch banking regulations in UK and Holland, and the laxity of those regulations
was the main cause of the crisis, it is only fair that the governments of the two countries
should be primarily responsible for compensating the depositors.

[HeresyLives]

19. No, it can't.

[Rapier09]

17. Not easy to take sides

Iceland shouldn't have been playing with funny people then come running to the EU when it got burned.

On the other hand,irregardless of what happens,the Icelandic government isn't going to magically find a way to pay the debt without burdening the taxpayer.

[WriteDown]

24. So much for my idea to open an Icelandic savings account. nt

[western mass]

32. Iceland taxpayers = no to bailout

unlike the suckers that are the american taxpayers.

No, the Icelandic taxpayers are not responsible for the debt. Criminal bankers are 100% responsible.

[Odin2005]

33. The banksters can go SUCK IT!!!

[JVS]

34. It would be foolish for Iceland to pay. It's about $16K/ icelander.