Right Thinking From The Left Coast
The Government is merely a servant -- merely a temporary servant; it cannot be its prerogative to determine what is right and what is wrong, and decide who is a patriot and who isn't. Its function is to obey orders, not originate them. - Mark Twain

Baldur Has Spoken

Here’s a question for the floor: should Iceland bail out British and Dutch governments?

During the boom, lots of Europeans opened online savings accounts with a big Icelandic bank called Landsbanki. When things fell apart in 2008, Landsbanki went bankrupt.

Officials in the Netherlands and the U.K. decided to reimburse their citizens who saw their Landsbanki savings accounts wiped out. In all, the governments paid back about $5 billion in deposits.

Now the U.K. and the Netherlands want their money back.

Some of the money will come from Landsbanki, which is in the process of selling off its assets. But that’s unlikely to cover the total — a report by an independent consultant estimated that the banks are likely to come up anywhere from $200 million to $2 billion short.

The governments of Iceland, the Netherlands and the U.K. worked out a deal for the Icelandic government to repay whatever Landsbanki’s assets don’t cover. And last month, Iceland’s legislature passed a bill to go ahead with it.

But, in a dramatic move, the Icelandic president refused to sign the bill into law. So now, under Icelandic law, it’s up to the voters to decide.

There are many issues wrapped around this.  The UK invoked anti-terrorism laws to seize some bank assets, which created a bad political climate. There are also currency issues, since Iceland is not on the Euro.

If I were Icelandic, I would probably vote “no”.  It seems to me—and I know our UK readers will probably disagree with me—that the governments of the UK and Netherlands made the key decision in bailing out their citizens and now are bullying Iceland into covering for their mistake.  I have no problem with going after Landsbanki.  But why should the citizens of Iceland be forced to cough up for this?  It’s not like they collected the big returns in the first place.

(There is a threat from Moody’s that they will downgrade Icelandic bonds if the referendum fails.  This threat—blackmail really—would be next to meaningless in a rational world. Moody’s spent the last decade giving AAA ratings to mortgage-backed securities that turned out to be big piles of shit.  Their chief economist—Mark Zandi—is a loon who thinks all government spending pays for itself five times over and predicted that we’d hit the bottom of the real estate market four years ago (note: the real estate market is still plunging; new home stars reached a three-decade low last month).  Investors would be stupid to pay attention to Moody’s attempt to blackmail Iceland.  Hell, if I had money, I’d buy Icelandic bonds just to give the finger to Moody’s. A no on the referendum affects Iceland’s ability to pay off private debts, not public ones.)

I can see the counter-argument.  Iceland’s economy boomed on the back of banking bullshit and a lot of people lost their shirts in banks that Iceland was supposed to be regulating.  I’ve tried to figure out what aide has been given to Iceland but the crossing of banking, government, EU, IMF and other things has singed my circuits a bit.  They have gotten a reasonable deal on terms and interest on the repayments—but that sort of hinges on thinking the repayments are justified.

I’m sure there are other aspects that our European friends would be happy to enlighten me about.  I’m happy to hear that I’m wrong on this.  But my gut reaction would be to oppose it.

Posted by Hal_10000 on 03/25/11 at 06:31 AM (Discuss this in the forums)


Posted by on 03/25/11 at 08:58 AM from United States

But my gut reaction would be to oppose it.

Mine too. Furthermore, I don’t think the UK and Netherlands should have been so quick to reimburse their citizens who made deposits in Icelandic banks. UK and Netherlands used their taxpayers’ money to guarantee those who chose to risk their money by depositing it in a foreign country’s bank. That risk should not be guaranteed by government, unless there was an explicit FDIC-like guarantee covering Icelandic bank deposits made by the UK and Netherland governments. If the UK/Netherlands govts. made no such explicit guarantee, then they’re not entitled to anything beyond their share of proceeds of the liquidated bank..

Posted by AlexinCT on 03/25/11 at 09:12 AM from United States

You guys are missing the point here people. This is part & parcel of the European socialist system where there are no consequences from any risk the government approves of or likes to promote. That’s why the Dutch & UK government reimbursed their citizens. I wouldn’t be surprised that they actually also have a legal obligation to do that, be it from their own laws or some obscure EU one. This was about having the people accept the idea of that whole greater European nation the EU was supposed to be, and the bureaucrats in these countries, where selling the whole EU idea hasn’t been easy, would have definitely pushed for stuff like this.

I believe that Icelanders should say no, but then the EU might remind them about those bailouts they got just recently and kind of allude to that cash cow might die a gruesome death if they don’t do the tit for tat thingy. BTW, this will all be governments, not the actual people, doing this work. For a long time now the will of the people in the various European nations hasn’t been important to the Eurocrats, the elite, whom believe they know what’s best, and that the peasants should just shut the hell up and take what they are given. The politicians in Iceland will eventually agree to pay up, after a valiant show of defiance that will appease the people, because that’s how the game is played.

Posted by TheEvilCapitalist on 03/25/11 at 06:43 PM from Germany

This is part & parcel of the European socialist system where there are no consequences from any risk the government approves of or likes to promote. That’s why the Dutch & UK government reimbursed their citizens

Exactly… Its precisely this mentality that is making European society decay from within. Liberty and responsibility are two sides of the same coin; a coin that Europe has flippantly tossed into the jaws of ever expanding state.

Posted by on 03/26/11 at 02:27 AM from Europe

I think that this all came about because of overregulation.

When governments meddle in the banking sector by guaranteeing bank deposits, they remove risk from the decisions investors make. Without risk of loss, the money will flow to instruments with the highest interest rates, even if they unsound.

In a freer market fewer people will put money into a 10% instrument, because of the non-insignificant chance it will go belly-up. And problems like Landsbanki would, I think, be much rarer.

Posted by Ed Kline on 03/28/11 at 10:38 AM from United States

Why the hell should the average Icelander give a flying fuck about the solvency of European governments? I’d vote hell no if I could.

Posted by AlexinCT on 03/28/11 at 11:37 AM from United States

Why the hell should the average Icelander give a flying fuck about the solvency of European governments? I’d vote hell no if I could.

As has been the case in all things EU, the poor people of Iceland will be subjected to vote after vote, until the EU autocrats can claim the process has been served, and then do what they wanted in the first place. The will of the people is of little concern to these types.

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