The Big Bailout of the Eurozone (Another crisis coming? - Seriously)

[Capt Pat]

I see the president of Iceland has told the Brits and Dutch that they will not be paying the money back from the savings banks that went bankrupt.

http://news.bbc.co.uk/2/hi/business/8441312.stm

Now if the Irish government would just see sense and throw nama in the bin, let the banks go bankrupt and start again we wouldbe in great shape.

[no mo do yakamo]

They're going to have a referendum and let the people decide.  We should go one better and have two.

[Declan]

McWilliams has a piece on the Iceland thing in today's Indo -

Yesterday the, largely ceremonial, president of Iceland stood up for what is right. He decided that it was not democratic for the Icelandic government to insist that the Icelandic people pay foreign depositors who deposited money in Icelandic banks that subsequently went bust.

The president refused to sign the parliament's bill, which would have penalised the Icelandic people for the mistakes of the executives of the Icelandic banks. He concluded that this was not reasonable as the banking mess was not the fault of the average Icelander. Iceland will have a referendum on the issue now.

This move implies that Iceland might jeopardise its access to IMF funds as well as definitely knock back its aspirations to join the EU.

The official line peddled by the international bureaucrats is that standing up for the small guy undermines Iceland's credibility. However, the president decided that if credibility in the eyes of the foreign investors comes via hoodwinking the average Icelandic citizen into footing the bill for a mistake the financial markets facilitated, then it was better to be not credible.

This type of credibility undermines democracy and the basic idea that the government represents the people. In so doing he has stood up for something which is now, sadly, profound and unusual in modern politics -- he is championing the interests of the small man in a small democracy.

At the press conference, President Olafur Grimsson referred to a petition which raised signatures from thousands of ordinary citizens who were set against bailing out the banks at the people's expense. The petitioners went on to argue that foreign depositors (mainly Dutch and British) took out deposits in Icelandic banks because the banks were offering interest rates that were much higher than in the UK or Holland. In economics the iron rule is, the higher the return offered, the higher the risk offered.

The Icelanders are simply saying that your investments have nothing to do with us and, therefore, the solution to the depositors' dilemma is not the immediate concern of the average cod fisherman from the Westman Island or any other part of Iceland for that matter.

In a country where the president occupies a similar position to our own, this was only the second time a president has ever declined to sign a parliamentary bill.

The Icelandic story is a mirror image of Ireland's. However, unlike the Irish case where the average person is being asked to pay the bondholders of the banks -- the creditors who speculated on such gems as Anglo Irish Bank -- the Icelanders are taking a different tack.

They have decided that the people -- not the elites or the "insiders" -- must decide. This country clearly is a proper democracy; not one run by politicians who are part of an insider group up to their teeth in property and who can't see that they represent the people, not the elite.

In its most simple terms, Iceland is a country with a banking system attached. In contrast, Ireland is a banking system with a country attached to it.

In the past five years, the Icelandic banks behaved precisely like our own. They lent to anyone and anything but, in the main, they lent to their mates. When they ran out of Icelandic deposits, they borrowed abroad to finance their expansion. They issued debts and when they could no longer issue enough debt, they took in deposits.

When the system crashed, the foreign depositors and the bondholders got caught. You can rightly ask what in God's name were English depositors doing putting their life savings into Icelandic banks that they had never heard of?

Now let us move to the ramifications of the Icelanders' democratic stance. Officials are aghast. According to the men who run the Department of Finance here, if we were to do something similar and negotiate a deal with our foreign bank creditors, Ireland would be declared a pariah. They claim interest rates would rocket and the world would shun us.

If their view is right, interest rates in Iceland should have jumped yesterday on the news of a referendum. But they didn't -- Icelandic interest rates hardly budged from their present 7pc.

By the way, when I was in Reykjavik last May interest rates stood at 15pc. Yes, they are high, but interest rates in Iceland are coming down in line with inflation, as any basic economic textbook would predict.

More significantly, long-term interest rates, which gauge the long-term risk in a country, have also fallen to 7pc in Iceland.

This means investors believe there is no real extra risk in Iceland in the future. My guess is that Iceland's credit rating will rise on this news, not fall.

The reason for this counterintuitive stance is the same reason John Maynard Keynes argued against reparations being imposed on Germany after the First World War. Keynes argued that if you impose the debts of a past regime on a new regime, the economy and politics will suffer.

In a similar vein, the Icelandic president has decided that it is unfair to lumber the average citizen with the sins of Iceland's financial generals. The specific case in Iceland involves one bust bank, but has ramifications for the whole country. Foreign depositors are owed €3.8bn by Icebank.

The EU stipulated that the average Icelandic citizen should pay €12,000 each to cover this. The EU and the IMF said further aid to Iceland is dependent on this deal. This president has stated that if the price of this EU and IMF help is penalising the citizen, then it is a price so high that it must be passed by referendum. In short, the outsiders (the citizens) should not be forced to bail out the insiders (the banks).

In their president, the outsiders in Iceland have a champion. Who champions the outsiders in Ireland? Who in our political class shouts stop, enough is enough? Who is prepared to say there is a difference between right and wrong?

Finally, who has the courage to point out that, in financial terms, far from being penalised, Iceland is being rewarded by gradually falling interest rates.

In Ireland we can't tell the difference between right and wrong, and worse still, we are not even getting the supposed financial bonanza for being "good boys" and siding with the international bankers. We are still paying nearly twice as much as Germany to borrow money.

Iceland is showing our politicians another way. These are not easy decisions -- and it would have been much better if the country had never got into this mess -- but at least they are dealing with it. Similarly, it would have been better if we never got into this mess too, but here we are.

Iceland proves that there is an alternative -- are any of our politicians, from the President down, prepared to listen?

[Rossie11]

Just read that at lunchtime. Fair play to the Iceland Prez for showing a bit of backbone.

[Hardy]

McWilliams is spot-on, but what he fails to emphasise is that the Icelandic government only decided to act because of huge pressure and protests from the public.

What a contrast that is with the craven submission of the Irish people to the government's pickpocketing them to compensate and appease speculators, investors and foreign financial interests. I find it hard to believe that we haven't even raised a murmur about this. I've been saying for a long time that if it happened in France the majority of the population would be on the streets and the country brought to a halt until the decision was reversed. But I hardly expected it of Iceland.

Nobody considers the Icelanders the most hot-blooded or passionate of peoples, but even they have the balls to say "piss off - you're not robbing me and my descendants to pay speculators". We are the people who boast to the world that we were the first to overthrow imperialist domination, but it seems we haven't managed to shake off the subservient, forelock-tugging deference to authority that goes with 800 years of conditioning.

And the latest piece of news that had me spitting crumbs over the table was this: I read somewhere that, on average, US fraudsters like the Enron crew and Madoff are in jail within six months of discovery. Then, this morning, I heard the small passing reference on the radio that, 18 months on, Seán FitzPatrick hasn't even been interviewed in the much-touted Garda investigation of Anglo-Irish Bankrobbers.

[Zapatista]

Iceland will have a referendum on the issue now.

I have little faith in this process.

[Declan]

We are the people who boast to the world that we were the first to overthrow imperialist domination, but it seems we haven't managed to shake off the subservient, forelock-tugging deference to authority that goes with 800 years of conditioning.

100% correct.

[Main Street]

McWilliams has a piece on the Iceland thing in today's Indo -

Yesterday the, largely ceremonial, president of Iceland stood up for what is right. He decided that it was not democratic for the Icelandic government to insist that the Icelandic people pay foreign depositors who deposited money in Icelandic banks that subsequently went bust.

The president refused to sign the parliament's bill, which would have penalised the Icelandic people for the mistakes of the executives of the Icelandic banks. He concluded that this was not reasonable as the banking mess was not the fault of the average Icelander. Iceland will have a referendum on the issue now.

McWilliams has got it wrong or at least has not got it quite right.

The Iceland President has already signed a bill into law last autumn which sets out the terms of repaying the  Eur 5-6bn. That original bill is still law but the Brits and the Dutch rejected 2 of the the terms contained within it and wanted Iceland parliament to make 2 changes. Pretty much the Brits and the Dutch want to impose a settlement on their terms only and are able to use the blackmail of IMF loans.

This bill that the President rejected contained those  2 amendments to the original bill and were the 2 feathers to break the camels back so to say.
The majority of people accept that Iceland has to pay a relatively humongous amount to the Brits and the Dutch and the ire is just about the those 2 terms.

The rejected amendments
One, is that the Icelandic Gov  will give up their claimed right to take the whole deal to a neutral court of arbitration and all parties to abide by that courts decision. It appears the Brits and Dutch have some reservation about letting their imposed settlement go to a court of arbitration that is outside their control
And the other one is that Iceland will have to keep up payments after 2024, if the total amount has not been paid back.
The original bills calls for repayments be fixed at a certain % of the GDP but to cease after 2024 regardless of the amount left to pay on the principal

[Main Street]

McWilliams is spot-on, but what he fails to emphasise is that the Icelandic government only decided to act because of huge pressure and protests from the public.

You misread, the parliament passed the bill. It was the President who refused to sign it.
The President responded to public concern.
When he refuses to sign a bill passed in parliament then it must go to the people without delay.

[muppet]

And the latest piece of news that had me spitting crumbs over the table was this: I read somewhere that, on average, US fraudsters like the Enron crew and Madoff are in jail within six months of discovery. Then, this morning, I heard the small passing reference on the radio that, 18 months on, Seán FitzPatrick hasn't even been interviewed in the much-touted Garda investigation of Anglo-Irish Bankrobbers.

Just finished Fintan O'Toole's book Ship of Fools.

It is an excellent piece of research and one of the days when I get time I will list the fraudsters and their offences, from his book, committed in Ireland over the last 40 years. Of them only Lawlor, Burke & Redmond  brieflywent to jail. One for contempt of count and the other two for corruption so outrageous even Ireland couldn't turn a blind eye.

Mark my words, if O'Toole's book is anything to go by, no banker will be convicted of anything let alone go to jail in this country. Only yesterday Brian Lenihan ruled out any inquiry suggesting now was not the time and when asked when was the time he said 'maybe 30 years'.

[Declan]

Just finished it myself Muppet - Unbelievable stuff altogether. Should be mandatory reading for every second level student in CSPE class. At least then we may have some hope of a change in mindset in this country

[Hardy]

McWilliams is spot-on, but what he fails to emphasise is that the Icelandic government only decided to act because of huge pressure and protests from the public.

You misread, the parliament passed the bill. It was the President who refused to sign it.
The President responded to public concern.
When he refuses to sign a bill passed in parliament then it must go to the people without delay.

Not so much misread, then as misreported to. Newsnight last night (my only source for this story) reported it more or less as I stated it - Icelandic people outraged at proposal to give taxpayers' money to foreign investors who lost money because of bankers' mistakes, protests in the streets, President takes note and refuses to sign.

Thanks for the correction.

[comethekingdom]

Letter from today's Indo :

My dog sleeps about 20 hours a day. He has his food prepared for him.

He can eat whenever he wants and his meals are provided at no cost to him.

He visits the doctor once a year for his checkup, and again during the year if any medical needs arise. For this, he pays nothing and nothing is required of him.

He lives in a nice neighbourhood in a house that is much larger than he needs, but he is not required to do any upkeep.

If he makes a mess, someone else cleans it up. He has his choice of luxurious places to sleep. He is living like a king, and has absolutely no expenses whatsoever. All of his costs are picked up by others.

I was just thinking about all this, and suddenly it hit me like a brick in the head.

Holy Smoke! My dog is a banker!

[Capt Pat]

Brilliant. Although I am not sure you are being a bit unfair to that dog who has no right of reply what so ever, I am sure he is very loyal.

[muppet]

Brilliant. Although I am not sure you are being a bit unfair to that dog who has no right of reply what so ever, I am sure he is very loyal.

If the dog doesn't have a huge pension he is not a banker. Probably a Building Society operative.