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View Diary: Is France about to default? (40 comments)

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  •  Hundreds of small banks also defaulted and had (2+ / 0-)
    Recommended by:
    RWood, erush1345

    assets picked up by larger banks. The larger banks and investment banks would have also defaulted if the government had not passed TARP and agreed to take up a large portion of the "troubled assets" with Freddie and Fannie.

    Companies such as AIG who sold CDS on the junk mortgages were also bailed out so they could pay the banks who had bought CDS against the shit they were selling (and holding). Bear Stearns and Lehman Brothers defaulted and assets were sold off.

    Without the massive bailouts by the Feds, all these banks would have defaulted, failing like a row of dominoes as each took out the next one.

    In Europe we are now seeing countries (instead of homeowners) starting to default on loans - the small ones like Iceland and Portugal the first to go.

    •  Iceland never defaulted. nt (1+ / 0-)
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      •  The country hasn't, but the banks did (0+ / 0-)

        and their debt was nationalized against the citizen's protests. The Bank of England then lent Iceland the money to pay the banks creditors. The people want the country to default on this loan because they feel it is not fair for them to have to pay for something the bankers did.
        Icelandic banks in default

        Author: Rob Davies
        Source: Risk magazine | 08 Oct 2008
        Categories: Credit Derivatives, Cash Bonds

        Topics: Landsbanki, Glitnir, International Swaps and Derivatives Association (Isda)

        The International Swaps and Derivatives Association on Wednesday confirmed that the Icelandic government’s takeover of Landsbanki on October 7 and its acquisition of a 75% stake in Glitnir Bank on September 29 constitute technical credit events.

        An Isda spokesperson told Risk a date for cash settlement auctions for credit default swaps linked to the two banks has not been set. But the move was inevitable once the Icelandic central bank intervened to shore up the country’s financial system by taking control in Glitnir and Landsbanki.

        The banks become the first European firms in default since the credit crisis began, and the first credit event in the region since Italian dairy company Parmalat defaulted in 2003.

        •  That's not exactly what happened. (3+ / 0-)
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          erush1345, ozsea1, gerald 1969

          It's a really complex issue and I don't feel like going over the whole thing again, but the key issue is that while people like to say that Iceland defaulted on its debt, and use that as an argument that Greece should do the same, Iceland never defaulted on its debt.  Iceland allowed its privately held banks to go into default, and refused to insure the accounts (claiming that they had never promised to insure the accounts) (although it should be noted that the British and Dutch governments reimbursed their citizens, and that the banks are now worth enough again to fully pay their obligations).  It's an important distinction because lots of people here try to use Iceland as a reason why Greece should default, when it's about as different of a situation as you could get.  Iceland's economy is quite peculiar in general.

          •  I agree - Iceland's financial problems were (0+ / 0-)

            closely tied to the banking crisis of 2008 and it was the banks that defaulted and not the country.

            But, Iceland voted to default on the debt to foreign depositors after they nationalized the banks.


            UK 'disappointment' as Iceland rejects repayment deal

            Icelanders have rejected the latest plan to repay the UK and Netherlands some 4bn euros lost when the country's banking system collapsed in 2008.

            Partial referendum results show 58% voting no, and 42% supporting the plan.
            The issue will now be referred to an international court, the European Free Trade Association Surveillance Authority, a process which could take several years.

            Backers of a "yes" vote had argued the repayment deal was the best way to resolve the issue in terms of cost and risk to Iceland.

            The "no" camp said the Icelandic taxpayer was under no legal obligation to pay for a private bank's losses and that the deal would put a heavy burden on the nation.

            •  That's also not exactly what happened. (1+ / 0-)
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              Claudius Bombarnac

              First off, there was no "debt" to the British and Dutch governments as a consequence of Icesave.  Iceland never took a loan from them (well, they did later, but that's unrelated).  The British and Dutch governments bailed out their citizens and then demanded that Iceland compensate them.  In two referendums, Iceland said 'no'.  However, at the same time, Iceland has never rejected (and the Icelandic supreme court recently reaffirmed, just last week) all debt obligations of the banks themselves.

              The key distinction is that every time, Iceland has honored any obligations incurred by the government, and held that all private parties must honor their obligations, while refusing to have the government compensate for any obligations incurred by private parties.

              Again, the contrast must be made with Greece et al, wherein the governments have incurred debt.

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