Right Thinking From The Left Coast
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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 in Europe and the UK • Permalink


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