Let banks fail: Iceland’s plan looks to be working

[solarhydrocan]

Let banks fail: Iceland’s plan looks to be working
Bloomberg News | January 27, 2014


A cyclist passes an Icelandic national flag hanging in a popular shopping
street in Reykjavik, Iceland. Paul Taggart/Bloomberg

Iceland let its banks fail in 2008 because they proved too big to save. Now, the island is finding crisis-management decisions made half a decade ago have put it on a trajectory that’s turned 2 percent unemployment into a realistic goal.

While the euro area grapples with record joblessness, led by more than 25 percent in Greece and Spain, only about 4 percent of Iceland’s labor force is without work. Prime Minister Sigmundur D. Gunnlaugsson says even that’s too high.

“Politicians always have something to worry about,” the 38-year-old said in an interview last week. “We’d like to see unemployment going from where it’s now — around 4 percent — to under 2 percent, which may sound strange to most other western countries, but Icelanders aren’t accustomed to unemployment."...

...Of creditor claims against the banks, Gunnlaugsson says “this is not public debt and never will be.” He says his main goal while in office is “to rebuild the Icelandic welfare state.” ...Successive Icelandic governments have forced banks to write off mortgage debts to help households. In February 2010, 16 months after Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf failed, unemployment peaked at 9.3 percent. The rate was 4.2 percent in December, according to Statistics Iceland. In the euro area, unemployment held at a record 12.1 percent in November, Eurostat estimates....
MORE
http://business.financialpost.com/2014/01/27/let-banks-fail-icelands-plan-looks-to-be-working/

[orpupilofnature57]

1. It must be the lack of Smog & Politicians .n/t

[A Simple Game]

2. Too big to save. I like that, maybe we should start using that phrase in this country. n/t

[svpadgham]

4. I agree.

These banksters are all about letting the free market work things out until it's their asses on the line.

[rurallib]

3. Thank you for this

very enlightening.
Note also that they are increasing welfare while other Nordic countries are cutting it.

[BelgianMadCow]

5. I once made a manifest for our Occupy group. Said one participant: we have to reference Iceland,

the unmentioned revolution. I follow news rather closely yet had very little idea what he was on about.
And that's still the case for many, many people. Thanks for breaking the silence.

[mackerel]

6. I believed it then and I continue

to believe this was the smartest move Iceland has ever made.

[AnneD]

7. The banks gambled with their money....

most Governments basically covered the banks debt but did not institute any real reform and the debt has been passed on to the innocent public. Basically, the banks are foisting their debt onto the public and frankly, the public doesn't owe the debt. Let them fail. Haul those responsible into court and let them face jail time. That will give those banks the corporate equivalent of a death sentence.

[BelgianMadCow]

8. The concept of odious debt could and should be applied to all the bailouts

of banks, of "countries" (truth is, "Greece" = german, french and greek banks) and, given LIBOR and similar manipulative schemes (mortgage fraud), it could be applied to a LOT of debt.

Which would free us from debt slavery (as brought upon entire people by the IMF and other troikans), and would constitute a modern day debt jubilee of the kind the Bible calls for every 70 years. Steve Keen, the economist that DOES include banks in his modeling and who predicted the crisis, also advocates for one.

[AnneD]

11. I too....

am in favor of a Jubilee, for much the same reasons.

[MisterP]

17. socialism for us, capitalism for you

http://en.wikipedia.org/wiki/Lemon_socialism

[AnneD]

19. Never heard the term...

lemon socialism but have heard the quote.

[Baclava]

9. Iceland has a population of 320,000 - it can't be compared to a country of 320 million

how many banks do they even have?

a dozen?

[BelgianMadCow]

10. How many banks does the US have?

There are several reasons why Iceland hasn't been repeated yet. But population size or number of banks aren't among them.

Information, perhaps.

[solarhydrocan]

18. + a lot

[hunter]

13. Why not?

Do the properties of banking change with the scale?

I doubt it.

[Baclava]

15. Iceland only has 3 major banks - it just seems they could consolidate things a lot easier

Iceland had to obtain emergency funding backing from the IMF and many European countries in November 2008 to keep afloat.

I doubt there'd be anyone there to support our economy while we restructure

[geek tragedy]

12. Iceland is 1/1000th the size of the US. What works there would not necessarily

work here.

Take the fallout from Lehman, multiply it by ten, and that's what would have happened if Citigroup were allowed to simply fail without any kind of orderly process.

Oh, and it would have been bought at a firesale price by JPM and Jamie Dimon.

[sabrina 1]

14. But they are supposed to fail then get public funds to bail them out.

See the huge bonuses our 'failed' bankers are getting. Rewards for their success.

Iceland clearly didn't get the message, they were supposed to turn into a third world country where workers would work for low wages so Corporations could make more profits among other things, make the people desperate so they'll settle for anything.

But Wikileaks caught them off guard, the Wall St crooks when they leaked the documents on Iceland's Banks and refused to take them when they were threatened.

Whistle Blowers, a necessity to any democracy. Had those documents not been leaked Iceland would be in the same desperate situation as the rest of Europe.

[pampango]

16. Iceland to Cyprus: Make the rescue more equitable and watch out for inflation

One big difference between Cyprus and Iceland is that the Mediterranean island - as part of the eurozone - cannot devalue its currency as the Nordic island did. "Our recovery (Iceland's) is a typical case based on currency devaluation. Then the exports get more competitive on fish or aluminium sold abroad, also services and tourism got a boost as prices dropped in Iceland," the former spokesman said.

"But we can't forget who's paying for all that - it is the citizens in Iceland, because inflation doubled while salaries stayed the same. We don't pay with high unemployment, but with lower salaries," Omarsson added.

"I would not recommend Cyprus to leave the euro now, even you can wonder in hindsight if it was reasonable to join. Rather, get the capital controls lifted so domestic payments can work again properly, sit down and figure out what to do to shift the burden from locals who lost a lot in a very unfair manner to a more equitable solution," Magnusson said.

http://euobserver.com/economic/119718

Iceland becomes first European country to sign free trade agreement with China

Iceland on Monday became the first European nation to strike a free trade deal with China, offering hope for its recession-battered economy while giving Beijing a leg up in its drive for expanded influence in the Arctic.

The China-Iceland free trade pact will lower tariffs on a range of goods and is expected to boost seafood and other exports from the remote Nordic state to the world’s second-largest economy.

http://www.washingtonpost.com/business/iceland-set-to-become-first-european-country-to-sign-free-trade-agreement-with-china/2013/04/15/6282da48-a5b4-11e2-9e1c-bb0fb0c2edd9_story.html

[AnneD]

21. We are paying for this...

quantitative easing with high unemployment AND lower salaries. Explain to me again how what the Feds did was better. I think I missed something (actually I don't think I did). And we have inflation to boot.

edited to add...The lesson I learned about Cyprus was not to keep much money in the bank.

[pampango]

22. As you probably know, the government has had 'austerity' budgets since the stimulus in 2009.

Republicans are, of course, the big deficit hawks and push 'austerity' budgets as a way to attack the safety net. The fiscal impact "austerity budgets" is to slow the economy down, increase unemployment and lower wages (all pretty typical republican goals). The Federal Reserve, through quantitative easing, has been increasing the money supply which stimulates the economy (and runs the risk of causing inflation). There has been a 'war' between the contractionary effect of fiscal policy and the stimulative effect of monetary policy.

Paul Krugman consistently posts that worries about inflation, which republicans often cite as a reason for 'austerity' budgets, is misplaced in the US and that we have had little inflation in recent years.



I did not mean that 'what the Feds did was better', just that no solution is painless. Iceland's inflation was over 10% for a while, peaking at around 18%. That does not mean that what our government did was 'better', just that Icelanders paid a price for their solution even if it was a more acceptable price.

[Rex]

20. Our brand of Capitalism rolled over and died 30 years ago.

Now all we have is a corporate owned government that throws the occasional bone to the working poor.