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Iceland is about to pass a law requiring banks to split their commercial and investment banking into separate businesses, basically an Icelandic Glass-Steagall. The Icelandic banks collapsed first and worst during the financial crisis of 2008. The resistance of the Icelandic banks to new regulations was broken in a way Wall Street never was. That's why it seemed shocking that Iceland is only just now getting to this pretty obvious measure. That Iceland would re-regulate first makes sense, but taking four years is hard to explain. In the US of course, we still can't seriously consider putting in sane regulations like in the dark days of the 1990's. You know, the bad old days when the economy was strong, unemployment was low, and the banking system hadn't collapsed since the Great Depression.

What's even more depressing is that Glass-Steagall passed in 1933. Franklin Roosevelt got it done right away after taking office in order to cope with the banking collapse. Establishing the banking regulations we took for granted for the 50 years when we had no crises got done in a very short time, even before the New Deal. We had as big a collapse in 2008, yet it was a hellacious fight to pass Dodd-Frank two years later, and some regulation still can't be considered, even obvious regulation like keeping investment banks from using government backed deposits in their commercial business to support risky bets.

"We've been burned by this, and that's why we have to look very closely at what we need to do to prevent it happening again," Economy Minister Steingrimur Sigfusson said in an interview. "Icelanders are more interested in taking greater steps than small steps when it comes to regulating banking."

His party, the junior member in Prime Minister Johanna Sigurdardottir's coalition, has submitted a motion to parliament to stop banks using state-backed deposits to finance risky investments. The move puts Iceland on course to become the first Western nation since the global financial crisis hit five years ago to force banking conglomerates to split their business.

It's a proposal that's gaining traction elsewhere. Even Sandy Weill, whose 1998 creation of New York-based Citigroup triggered the Gramm-Leach-Bliley Act that paved the way for financial behemoths, now says investment banks should be separated from deposit-taking banks. Opponents including JPMorgan Chase & Co. Chief Executive Jamie Dimon say diverse businesses are needed to spread risk across divisions and stay competitive.

The Icelandic lawmaker who presented the motion, Alfheidur Ingadottir, says the best way to stop banks creating asset bubbles is to pass laws akin to the 1933 Glass-Steagall Act, which separated commercial and investment banking in the U.S. for more than six decades.

cross-posted at MN Progressive Project

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Comment Preferences

  •  what a smart country that little iceland is. (3+ / 0-)
    Recommended by:
    phonegery, Sue B, NonnyO

    .... a secret wish to travel to iceland
    just got stronger....

    thanks for your diary. :)

    Toleration is the greatest gift of the mind; it requires the same effort of the brain that it takes to balance oneself on a bicycle. -Helen Keller

    by ridemybike on Sun Aug 05, 2012 at 09:30:15 PM PDT

  •  Rei - any comments??? (NT) (0+ / 0-)
  •  Icelanders... (2+ / 0-)
    Recommended by:
    salmo, opinionated

    ... have always struck me as generously endowed with common sense.  They're doing the right thing for their people.

    Now..., where are our legislators?

    Why didn't our Congre$$ Critter$ repeal Gramm-Leach-Bliley when things started going awry, and reinstate Glass-Steagall when they discovered that repealing it with Gramm-Leach-Bliley was an error of monumental proportions...?  (Gramm-Leach-Bliley was signed by Bill Clinton not long before the incompetent Dumbya-Dickie were installed by the $COTU$ decision of 12 Dec 2000 - gee, thanks, Bill - Not!)

    The only Congress Critter I've heard/read who advocates reinstating Glass-Steagall is Bernie Sanders (the only legislator we have who is endowed with common sense).  The others are gloomily silent - both Dems and Repukes, much to my dismay.

    What's wrong with that picture?  Too me, it means our Congre$$ Critter$ have been bought off by bankers and corporations..., and they're stoically ignoring those of us who voted them into office.

    We can vote the incompetent Congre$$ Critter$ out, y'know....  My feelings of dread increase every time I see "yaaaay, hooray, go team, go; let's re-elect these idiots" I just get more depressed.  We're also voting against our own best interests when we vote for the lesser of two evils..., because that's still voting for evil.  It keeps the doors open for more evil to crash through, and we have too many Dems voting with Repukes already - for the sake of this fictitious and mythical "bipartisanship."

    I'm sick of attempts to steer this nation from principles evolved in The Age of Reason to hallucinations derived from illiterate herdsmen. ~ Crashing Vor

    by NonnyO on Mon Aug 06, 2012 at 05:27:56 AM PDT

  •  Blah, more Omar Valdimarsson (0+ / 0-)

    He's Bloomberg's kooky reporter in Iceland most famous in recent years for getting in a fight with the Chinese PM's security detail, and in earlier years, for shilling for industry with his PR firm, especially for the company building the Kárahnjúkar dam in the middle of the (formerly) largest unspoiled wilderness area in Europe.

    In recent years he's been playing up every little thing about "the Iceland Miracle", no matter how poorly in accordance it is with the facts, because it clearly sells (as noted by how every time one of his articles gets released, it spreads its way through the blogosphere, like this).  I checked three Icelandic news sites - Morgunblaðið, Vísir, and Pressan.  Only one was covering this supposedly major topic (Pressan), and it was simply sourced based on Omar's English-language Bloomberg report.

    As far as I can tell, this is just a bill submitted by a member of the Vinstri Græns, nothing more, at least at this point in time.  They're the furthest left "major" party, although they only have the third most seats, and come the next election, both them and their larger coalition partner, Samfylkingin, are forecast to get totaled by the conservative Sjálfstæðisflokkurinn.

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