Iceland: Wanna know why we're better off than Ireland? We let the banks fail.

[marmar]

Nov. 26 (Bloomberg) -- Iceland’s President Olafur R. Grimsson said his country is better off than Ireland thanks to the government’s decision to allow the banks to fail two years ago and because the krona could be devalued.

“The difference is that in Iceland we allowed the banks to fail,” Grimsson said in an interview with Bloomberg Television’s Mark Barton today. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”

Ireland’s Prime Minister Brian Cowen said this week his government has discussed an 85 billion-euro ($112 billion) bailout with the European Union and International Monetary Fund after the country’s banks threatened to bring the euro member to the brink of bankruptcy. Iceland’s banks, which still owe creditors about $85 billion, were split to create domestic units needed to keep the financial system running, while foreign liabilities remained within the failed lenders.

As a consequence, “Iceland is faring much better than anybody expected,” Grimsson said. The Icelandic state’s liability on foreign depositor claims stemming from Icesave accounts at failed Landsbanki Islands hf should be put to a national referendum, he said. ...........(more)

The complete piece is at: http://noir.bloomberg.com/apps/news?pid=20601109&sid=ab9qiwb6VDNg&pos=12

[villager]

1. So in some countries.... "change" actually means... change?

:shrug:

[BzaDem]

11. Change actually doesn't mean letting US Banks fail (especially when Obama ran on supporting

the bailout).

The truth is, there is a large difference between the consequences to the world of a tiny country like Iceland having its banks fail, and the US having its banks fail.

In reality, you will never get a President who (when confronted with the same circumstances as in 2008) would let US banks fail. No President would allow something to happen that would allow a depression to take hold that would make the 30s look like the 90s (though this will make some people here who want it "all to collapse" very unhappy). We are fortunate that we live in a representative democracy, where (despite making bad decisions on many issues), our representatives occasionally save people from themselves.

[scarletwoman]

19. You seem to be intent on ignoring this one key piece of what Iceland did:

Iceland’s banks, which still owe creditors about $85 billion, were split to create domestic units needed to keep the financial system running, while foreign liabilities remained within the failed lenders.

Got that? They split the banks and kept their domestic financial sytem running.

What WE got were giant mutant banks who won't lend and who contribute nothing to our overall economy, but only enrich themselves.

[BzaDem]

21. The only reason they could do that (and not have a worldwide great depression) was that they are

tiny compared to the US.

"What WE got were giant mutant banks who won't lend and who contribute nothing to our overall economy, but only enrich themselves."

That is true to a certain extent, but not completely. They are lending to keep the status quo approximately what it was before. (For example, they didn't immediately stop lending to large, solvent companies for short-term payroll, which would have caused great-depression levels of umemployment very quickly.)

You are correct that they are still sitting on ADDITIONAL money (beyond what's needed to allow status quo levels of employment), and that they should be lending it out. They are at fault for that, and we do need stronger regulation. But part of the reason they aren't lending is that there is less demand by businesses for borrowing in the first place. Why would any rational business want to borrow money to expand operations if their customer base is declining?

What's really needed is massive Keynesian stimulus to create aggregate demand. Until that happens, businesses won't borrow enough, which means banks won't have anything to do with their excess money besides sit on it or speculate. Regulation can lower the speculation, but not the "sitting on it." To solve that problem, we need Keynesian stimulus to create demand in the first place.

[villager]

23. Intent, indeed. Because some here define "change" as "keep supporting monied interests"

because not doing what they demand, would be, well, just too damn changey!

[kentuck]

2. We may get another chance?

Will we blow it?

[Starry Messenger]

3. k & r

[Catherina]

4. India has it even better. Rec'd

India somehow missed the consequences of the toxic products invented and exported by US financial institutions. It had no financial crisis… I asked Dr. Reddy how India managed to dodge the financial bullet. “We don’t understand these complex instruments,” he told me with a smile, “so we don’t permit them. We leave them to the advanced nations like you.”…

My reporting has confirmed that Dr. Reddy stood firm in the face of intense pressure from the governments of Britain and the United States, as well as the world’s large banks and their Indian affiliates. He was attacked as old-fashioned and rigid. The Indian central bank under his leadership persisted… to make it unprofitable for Indian banks to create and gamble in the kind of exotic derivative securities that crashed the American system…


http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=9636301&mesg_id=9636301

[cutlassmama]

15. Seems India is the only country with any sense. Of course they have

a caste system and A LOT of their citizens live in abject poverty, but they didn't get taken by the bankers like the rest of the world.

[Odin2005]

5. Love the Icelanders!

:D

[BrklynLiberal]

6. Are we the dumbest country ever??????????

[Lorien]

35. Perhaps. Certainly one of the most gullible

propaganda works.

[AngryAmish]

7. Crony capitalism at it's worst

Ireland's ruling class is very insular. Went to the same universities, bought the same bullshit hook, line and sinker. They thought if the Irish banks (run by their buddies) went under then the country went under. As it turns out, just the opposite was true.

Is there really a reason why Ireland needs home-run banks? Not really. If their banks suck, there are Spanish, German or other banks who can do it just as well.

Question: Does the EU have an FDIC type organization? These banks need to be seized, the investors get it in the ass and resume the market. I am sitting on 1/6 of a house in Kerry I can't sell (the market is frozen). All I want to do is sell the damn thing and have a nice fortnight in Rio.

[rucky]

17. I think the EU equivalent of the FDIC is called

Germany

[Odin2005]

24. The EU is the German Empire without Der Kaiser.

:)

[hedgehog]

25. WHat was the reason you bought the share of the house in Kerry?

[AngryAmish]

29. inherited it

dear uncle William, God rest him

[scarletwoman]

8. "...the state did not shoulder the responsibility of the failed private banks." What a concept!

Making the private banks own their own debts! Protecting the citizens instead of the banksters!

It's so... logical! Wonder why no other countries managed to think of it? (rhetorical question)

We need to smash the entire global financial sector into tiny manageable pieces subject to strict regulations that protect the economic sovereignty of every nation and their citizens.

sw

[BzaDem]

12. "Wonder why no other countries managed to think of it?"

Perhaps because allowing the whole banking system to fail would NOT protect citizens instead of bankers? Perhaps because in the case of the United States, it would launch the US and the World into another great depression much worse than the first one? Just like the banking system failure of the 30s did (though worse)?

You should look more than 5 minutes ahead when making such statements. Just because an idea looks intuitively pleasing doesn't mean it wouldn't have catastrophic consequences.

Thinks are obviously not the same in a tiny country like Iceland.

[scarletwoman]

13. Iceland kept the domestic banking side intact, they didn't allow the "whole" banking system

to collapse.

There ARE options that exist between all or nothing -- for example, there used to be Glass-Steagel which kept actual banking functions (like managing customer deposits and lending money out to other customers) separated from speculative activities.

The current set-up of the Financial sector has unleashed a monster that serves no public good; it's nothing but a gaping greedy maw sucking up all the wealth created by the other sectors of the economy to enrich the few at the top.

Why anyone would want to defend that is beyond me.

[BzaDem]

22. Iceland was completely different than the US. In the US, even the domestic side alone would still

been a gigantic bailout.

I agree with you about Glass-Steagel, breaking up the banks, and probably most of your other preferences for financial regulation. I'm just stating that not bailing out our banks wasn't an option for us (even if it was an option for countries like Iceland).

[Taitertots]

9. Why doesn't Ireland do the same thing?

Oh yeah, because they can't let their currency devalue. So that would be bad advice for Ireland and Europe.

[Edweird]

10. Boom goes the dynamite.

[malaise]

14. 100% correct

Thieves should not only fail but they should also be sent to prison.

[laughingliberal]

16. K & R nt

[Honeycombe8]

18. Makes a person think, doesn't it? But really, Iceland went bankrupt.

Didn't it? Unemployment.....very very high, I guess? And Iceland's banks, unlike the U.S. and Great Britain's, don't run the world, right? That's just a guess. We DID let Lehman Bros fail. Well, it failed before we could do anything about it. If the others had failed, there might have been a domino effect globally, plus devastating for our economy.

Still, if 30% unemployment is the price to pay, maybe we should've paid it.

These are super complicated matters. Because of that, I'm not convinced Iceland made the right decision, or that it's doing very well, or better than if it could've helped their banks stay afloat (they didn't have that choice...they couldn't afford it, and couldn't get lending, I think). What else would Iceland say at this point? They have a decision to defend. Just like every other country has. So it's hard to know whose decision was right for each particular country.

[Hannah Bell]

20. kr

[hedgehog]

26. I have to agree that Iceland and Ireland are not the US. What works for them

would not work for us. For comparison, why are the individual state governments sweating bullets trying to balance their budgets while the Federal government runs a deficit year after year? In fact, I've read that one way to guarantee a depression is for the Federal government to balance its budget, year after year.

I'm afraid that one way we are similar to Ireland is that we are being played by bankers who are so wealthy they don't care if the country goes under. Yes, we had to stabilize the world banking system. Whether we got taken to the cleaners by those who caused the disaster in the first place is another question.

[applegrove]

27. Yup. For countries with the euro, like ireland and greece, not being able to devalue a currency is

an issue.

[maryf]

28. k&r nt

[Toucano]

30. Iceland's economy is 1/18th the size of Ireland's.

It just might be a factor to take into consideration.

Iceland rivals economic powerhouses Albania and Botswana.

[JackRiddler]

32. So? Argentina's is about 50 percent larger than Ireland's.

The point is that Argentina and Iceland both are much better off after unilaterally changing the terms of debt repayments (defaulting). Same will be true of Ireland.

We don't need to accept the crushing terms of the banksters who caused the crisis.

[Lorien]

37. +1000. nt

[Toucano]

39. Is 50% larger now. Was not 50% larger in 2001.

That's another inapt comparison.

Argentina, like Iceland, did not have a shared currency to consider. Argentina also suffered through 25% unemployment as a result.


Ireland defaulting may be in everyone's best interest, as you say. I certainly think the IMF deal is rotten.

I only take issue with the suggestion that situation in Iceland could be used as a model because it ignores substantial differences that exist.

The EU has to stop trying to address the debt crisis on a country by country basis and begin to address the unified core problem.

[JackRiddler]

41. Incorrect.

You mean, "Argentina recovered from 25 percent unemployment as a result."

Argentina's economic disaster came because of neoliberal policies and resulted in mass impoverishment. Its period of recovery and growth came after the people rose up and forced the 2002 decision to end the IMF stranglehold on domestic policy. Argentina suffered by accepting austerity and grew after it ended austerity and defaulted (unilaterally rescheduled its debt).

As for the shared currency, Ireland did not enter it as a means of suicide. Ireland can leave. Or Europe needs to reform the euro so that fiscal sovereignty can be restored.

Pretty much every place is seeing recovery crushed under the weight of excessive and unjust debt. The solutions may take different forms, but everyone's got to deal with this problem if they want to see better results. One thing is certain: not all debts are going to be repaid. It's probably better to do the write-downs in a controlled fashion.

[Lorien]

36. Scale doesn't matter, effects do. nt

[Toucano]

40. Nonsense.

The "effects" are directly proportional to the "scale".

You've never heard, "The bigger they are, the harder they fall?"

Besides, the scale of the economies is only one reason the comparison to Iceland is silly.

[xchrom]

31. It's good food for thought.

Whatever the arguments about size, not the same, etc
We still haven't done the right thing here re: banks, the country,
And every day citizens.

[ShadowLiberal]

33. Didn't the crisis destroy Iceland's government? I know it caused unemployment to jump to 15%

Also Ireland is different because they're linked in with Europe and the Euro the rest of them are using.

Plus, I'm not sure about Iceland's taxes, but Ireland's financial mess was also caused by the government having ridiculously low tax rates that couldn't possibly pay for all their spending (to the point of conservatives always bragging about their low business tax rates when saying taxes are too high here).

[DCKit]

34. And Argentina told the IMF and World Bank to take a hike.

Some leaders (those actually working for Teh Peoples) "get it" and some don't.

[Lorien]

38. It's not that the other leaders don't "get it"; it's that they don't give a rat's ass about the

people. They are owned by the banking interests and serve their interests only.