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  •  A diary on what Iceland (5+ / 0-)
    Recommended by:
    glorificus, jpmassar, raincrow, elwior, Rei

    did in fact do would be helpful. I know they didn't welsh on all their debt as some people say here. My landlady got her money back, with/without interest Im not sure. I also know that Icelanders had to put up with some fairly stiff austerity measures, but am under the impression that the situation is improving, unlike the UK where life is dire and getting more so.
    I think a lot of people generalise wildly and/or have set beliefs either pro or con on what Iceland has done to pay down their debt. It would be good to hear it from the horse's mouth so to speak.

    "There's a crack in everything; that's how the light gets in". Leonard Cohen

    by northsylvania on Mon Dec 03, 2012 at 03:38:45 AM PST

    [ Parent ]

    •  they absolutely screwed foreign creditors. (4+ / 0-)

      foreign creditors wound up getting 5-10 cents on the dollar in some cases.  what happened: Icelandic banks advertised great deposit rates and offered to do so in pounds and euros.  foreigners gave lotsa money to the banks in the form of deposits and bonds, which loaned it to Icelandic people to find their insanely high household debt, and then the banks promptly collapsed and Iceland refused to return the deposits.

      •  after a little more looking, they did (3+ / 0-)
        Recommended by:
        jpmassar, raincrow, elwior

        repay some foreign creditors (like UK local government units).  I'm trying to figure out which foreign creditors got hosed, but its tough to find that level of detail.

        •  After a (11+ / 0-)

          you'll find that you need to look a bit harder.  Those who got "pennies on the dollar" are those who invested in Icelandic companies that went bankrupt, which is always a risk when you invest in companies.  The Icelandic stock market went down to just a couple percent of its former value; only a couple companies didn't go bankrupt.  The scale of the crisis here was just unimaginable.

          As for the Icesave accounts in particular: these were investment accounts, generally individual retirement funds and municipal investments, not big-ticket investors.  They had guaranteed minimums.  The accounts were backed by an investment insurance scheme mandated by the Icelandic government; banks had to pay so much into the fund at regular intervals.  

          When Landsbankinn went under at the same time as Glitnir and Kaupþing the fund ran dry.  The fund plus the cash on hand in Landsbankinn only covered a percentage of the guaranteed minimums - think it was in the ballpark of 60% or so, but I'd have to check.  The British government in turn made up the difference and then demanded that the Icelandic government repaid them, which in turn ignited the Icesave dispute.  And BTW, the banks (after being restructured at the expense of the Icelandic government) have managed to sell off enough assets to repay all their debts.  But we're still being sued over the delay.  :Þ  Just can't win...

    •  Well, this would be about the 50th time to (27+ / 0-)

      write this (and if your solution is "write a diary", I've tried that too  :Þ).

      In a nutshell:
      * Iceland had no national debt problem before the crisis
      * Iceland never went bankrupt
      * Iceland has always honored its debts
      * Several private banks went bankrupt (that is to say, into receivership), one of which, Landsbankinn, had an international investment account system which created a diplomatic incident.
      * There was no conflict with "Banksters" involved in Icesave; it was a conflict between governments.  The British and Dutch bailed out their citizens and demanded Iceland compensate them.  Iceland refused to, as they were private banks.
      * * To go into that in more detail, Britain's arguments were that, first, Iceland was obligated by treaty to have a mechanism to insure accounts, and that because Iceland paid its own citizens whatever was lost in their Icesave accounts, that it was violating treaties by acting in a discriminatory manner.  
      * * The arguments are ridiculous though because Iceland did create a mechanism to back the accounts - a private fund that the banks had to pay into.  The fund went bankrupt.  There was no requirement that the government itself personally back the mechanism, just that such a mechanism exist.  And as for the "discrimination" argument, Iceland specifically passed a law after the crisis offering its own money for people who lost money, something Britain was likewise perfectly free to do.  It had nothing to do with the accounts themselves which were established long before this law was created.
      * Iceland proceeded to take out massive loans (as said, it had no national debt problem before, but debt is pretty high now).  Part of this was simply to make up for the huge shortfalls brought about by the crisis (the three major banks combined had half the debt load of Lehman Brothers - yet Iceland has 1/1000th the population of the US!  The crisis was of epic proportions).  But part of it was to help shore up the failing banks.
      * The banks, out of receivership, were now worth enough to sell off enough assets to pay off their debts, which they have begun doing and should finish doing in full before too long.
      * However, this still didn't stop the British and Dutch from suing us, which is a particular sore spot (makes me wonder, now why did we bail out the banks again?).  The lawsuit is ongoing.  A negative ruling could be quite painful.
      * There were two attempts to negotiate a settment to avoid the lawsuit.  The first was under the old, conservative government and the second under the new left-center government.  Both were sent to referrendum by the president, a rarely used power.  BTW, the president (Ólafur Ragnar Grímsson) is actually a fairly conservative guy in general.
      * * The first, which called for Iceland taking on the vast majority of the private banking debt, was soundly defeated.  This was actually a good thing in any regard because it gave the next government a lot more leverage.
      * * The second called for a greatly reduced amount of banking debt to be taken on by the government, but still a painful amount.  At first it looked like it was going to pass (being our last chance to avoid a lawsuit), but it ultimately failed 42%-58%.
      * * So, now it's all in the hands of the courts...  :Þ  We can only just hope it works out well for us there.
      * The old conservative government was headed by Sjálfstæðisflokkurinn, the Icelandic equivalent of the Republicans.
      * There were a lot of protests but there was no "revolution".  What happened was a normal election.  Sjálfstæðisflokkurinn lost and now there's a left-center coalition government between Samfylkingin and the Vinstri Græn-s.  However, Sjálfstæðisflokkurinn is again leading in the polls.  :Þ
      * To handle the massive budget shortfall, the new government dealt with it about 50% in revenue and 50% in austerity.  There were massive, ~30% across the board cuts in spending.  Salaries cut, projects cancelled, hospitals closed, etc, etc.  
      * While there were also loans from other countries, the main source of loans were from the IMF.  Iceland has been paying them back as mentioned, and Iceland has pretty much become the IMF's new poster child.
      * People sometimes talk about the new constitution.  First, here's what it is not.
      * * It was not begun "after the revolution election".  The review process began before the crisis even occurred.  Certainly it was accelerated by the crisis, but the crisis was not its genesis.
      * * It was not "crowdsourced".  There was a Facebook page inviting comments and suggestions, that's all.  It was a rather unusual group drafting it, though.
      * * It is not "passed".  In fact, it keeps getting set back through a wide range of tactics.  Hopefully this last (but non-binding) election that showed overwhelming support for passing it will be enough to get it through.  BTW, Ólafur opposes it.
      * However, I really do hope it passes eventually, as it's a pretty good document.  I don't like that it's doing nothing about the church-and-state status, but that's how people voted.  :Þ  But it does have some nice stuff, like banning private ownership of natural resources and very good guarantees of fundamental rights and of a solid safety net.
      * People often say that "Iceland jailed the bankers".  This is grossly misleading.  Yes, there were a small number of people jailed.  But these were the people who did outright fraud - Enron-style convictions, the same sort of banking convictions that the US does.  The people who made a fortune actually causing the crisis, though, the útrásarvíkingar ("out-vasion vikings") are in general still quite free.  Iceland had the exact same problem as the US, that what these people did was perfectly legal even though it drove the country to ruin.
      * Nor was the former prime minister jailed.  They tried to try him, it turned into a giant political circus, and all he got was a slap on the wrist. And he's fighting to overturn even that.
      * Concerning the home mortgages, you first have to understand some Icelandic financial history, which is quite different from most first-world nations.
      * * Compare the Icelandic króna with that of the other nordic krónur and you'll notice a huge difference in value.  Iceland has long been prone to deflation and wild currency swings.
      * * To counter this, Icelandic banks came up with two solutions.  One is called "verðtrygging", which means that in addition to interest, you actually pay the bank an insurance premium against the króna changing in value.
      * * The other, which had become very popular before the crash, was simply to borrow money denominated in foreign currencies.  That way the person who took the loan was left holding the bill if there was a wild currency swing.  The only other first-world country that I'm aware of that does this is Hungary.
      * * Well, there was a wild currency swing.  So not only did all the normal recession stuff happen - people losing their jobs, their savings, their home values collapsing, etc - but at the same time, the principle that they owed doubled.
      * * Challenges to these kinds of loans were raised in court, and the supreme court ruled that they were illegal and in violation of the constitution.  It was passed off to the government for how to deal with this.
      * * The (new) government interpreted the ruling in the most banker-friendly manner possible.  They could have used it as an excuse to just void all such loans, but instead they gave people the option to convert to a standard, verðtrygging-laden, higher-interest rate loan.  But it did reduce their principle (although they capped the principle reduction to no less than something like 110% of the home's value).
      * * This was nonetheless popular with people who had been burned by the foreign currency loans.  Still, some people with the more conventional loans were kind of annoyed by it because they had paid more to avoid the risk of currency swings, while others, who had taken these risks, were getting partially bailed out of their mistake.  But I digress.
      * Concerning the recovery:
      * * First off, it'd be hard for Iceland to not grow faster than almost everywhere else because Iceland went so much further in the hole than almost everywhere else.
      * * People who point to unemployment statistics in September are probably being deliberately misleading.  Iceland has a highly seasonal job market, with the lowest unemployment being early fall, due to the summer tourist season.
      * * Iceland historically has had abnormally low unemployment levels, usually 1-3%, sometimes even below 1%.  Pretty much any sort of relevant unemployment here is a significant rise.
      * Concerning the currency:
      * * When the crisis hit, the króna fell to half its former value.  Which a lot of people here and some like Krugman cheer.  But here's what it means in practice.  It means your savings (unless you're a rich person with diversified foreign assets) fell to half their value.  Your home, etc fell to half its value.  All of those imported goods (in a country that imports  most of what people consume) now cost twice as much.  Etc, etc.  It's like a sudden massive pay cut.  And guess what?  The króna hasn't risen one bit since.
      * * There's also currency restrictions that really annoy people who want to travel overseas.  There's some spectulation that the currency restrictions are building a housing bubble.
      * * It'll be many years even if things go as planned before the króna starts to strengthen and currency restrictions begin to ease.
      * The good news is, Iceland has strong fundamentals.  We've got massive amounts of clean electricity and heat capacity (practically unlimited), tourism levels that grow every year, fisheries that are still among the world's best, and an extremely creative, well-educated population.  Even climate change is generally good for us, as it makes the country more arable (new crops keep getting produced each year - this year had the first commercial sales of Icelandic honey, while last year was winter wheat).  So the future looks good in the long term.  I have trouble seeing the same for Greece; its tourism is no "well-kept secret" and is only going to suffer from the instability, shipping (one of its biggest industries) is way down and is going to stay down until the global economy recovers), and on and on.

      ---

      Okay, there you go, have at it.  :)

      As a totally unrelated side note, the sun is blinding right now, shining through my south window at the peak of its daily arc... at about 4 degrees in elevation  ;)  It'll be only 2 1/2 at the solstice.  But it sort of hangs there, moving more horizontal than anything else, and we get quite a lot of "dim" before and after it comes up, where you can still see what you're doing but the colors are all washed out (civil twilight).  However, by the end of February, direct daylight (assuming no mountains or clouds) will have risen from 4,5 hours to 10.  Seasonal light really varies quickly here!  :)

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