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[Trojita]

Kind of obvious reality, but still interesting data

http://www.belfasttelegraph.co.uk/news/world-news/imf-data-shows-icelands-economy-recovered-after-it-imprisoned-bankers-and-let-banks-go-bust-instead-of-bailing-them-out-31292885.html

Iceland’s finance minister has announced a 39 per cent tax on investors looking to take their money overseas.

The country has imposed the tax to prevent it hemorrhaging money as it loosens bank laws imposed six years ago, when Iceland made the shocking decision to let its banks go bust.

Iceland also allowed bankers to be prosecuted as criminals – in contrast to the US and Europe, where banks were fined, but chief executives escaped punishment.

The chief executive, chairman, Luxembourg ceo and second largest shareholder of Kaupthing, an Icelandic bank that collapsed, were sentenced in February to between four and five years in prison for market manipulation.

"Why should we have a part of our society that is not being policed or without responsibility?" said special prosecutor Olafur Hauksson at the time. "It is dangerous that someone is too big to investigate - it gives a sense there is a safe haven."

While the UK government nationalised Lloyds and RBS with tax-payers’ money and the US government bought stakes in its key banks, Iceland adopted a different approach. It said it would shore up domestic bank accounts. Everyone else was left to fight over the remaining cash.

It also imposed capital controls restricting what ordinary people could do with their money– a measure some saw as a violation of free market economics.

The plan worked. Iceland took a huge financial hit, just like every other country caught in the crisis.

Recovery 'without compromising on welfare model'

This year the International Monetary Fund declared that Iceland had achieved economic recovery 'without compromising its welfare model' of universal healthcare and education.

Other measures of progress like the country’s unemployment rate, compare just as well with countries like the US

Rather than maintaining the value of the krona artificially, Iceland chose to accept inflation.

Obviously they are a much smaller country with a smaller footprint, but at least they had the balls to go through with it and punish the perpetrators that lead to the situation. I remember every news and business show/report making predictions that the country was going to go bell up.

 

[Booshka]

Saved by the ISK

 

[Madness]

Didn't the UK try to use terrorism legislation to penalize Iceland until it paid it's debts or restructured their banking system or something? I've always wondered what would happen if the scare mongering stopped and these 'too big to fail' banks actually failed.

 

[Gallbaro]

Thanks Obama!

 

[oneils]

Those Eve online pirates propped up the economy by blowing up ships and harvesting care bear tears.

 

[Gonzalez]

I don't trust Iceland not after D2.

 

[Hasphat'sAnts]

Didn't the UK try to use terrorism legislation to penalize Iceland until it paid it's debts or restructured their banking system or something? I've always wondered what would happen if the scare mongering stopped and these 'too big to fail' banks actually failed.

Which of these Icelandic banks carry systemic risk?

Apples and oranges.

 

[Nastrodamous]

Well they do have eve

 

[Fenderputty]

We should have put the people behind the crash behind bars for the rest of their lives IMO.

 

[lastflowers]

We should have put the people behind the crash behind bars for the rest of their lives IMO.

I'm all for saving the banks... but those in charge should never have gotten away scott-free. Though how one goes about ensuring that happens must be a near impossible task. The uS even has that lawsuit saying the government takeover was illegal!

I'm glad to see Iceland recovered, and hopefully the article will delve into more specifics regarding retirement accounts/savings of more typical citizens. Onwards to reading it!

EDIT:

Seems like the future has recovered, but it doesn't really delve too much further than looking at a pure economic output--though I'm not really qualified enough to comment with any real authority on pretty much any economic topic.

 

[sooperkool]

You guys could at least credit Reddit when you take stuff right off their front page.

 

[Archaix]

You guys could at least credit Reddit when you take stuff right off their front page.

Why? Why would you credit a secondary source? Even assuming Reddit was where it was found (believe it or not, some people actually find news by reading news sites), Reddit didn't write the article.

 

[Jarate]

Icelandic banks dontnhave any where close to the amount of economic power that US banks have. Legit if we didn't save the Banks there probably would've been a global depression of massive size

 

[The Albatross]

Data shows US recovered after it allowed for golden parachutes and wall Street bailouts.

What does it all mean?!

 

[epmode]

You guys could at least credit Reddit when you take stuff right off their front page.

What's Reddit?

 

[Pedrito]

With a population of just over 300 000, it's not like they had much choice (letting the banks go bust). And those banks were pretty insignificant in the grand scheme of things.

Kudos for prosecuting those who violated the law though.

 

[Orbis Tabula]

You guys could at least credit Reddit when you take stuff right off their front page.

I agree. No one gives Reddit enough credit for writing all these articles. Those folks are doing good work.

 

[King Tubby]

With a population of just over 300 000, it's not like they had much choice (letting the banks go bust). And those banks were pretty insignificant in the grand scheme of things.

Kudos for prosecuting those whose violated the law though.

Just because they have .1% of the population as the United States doesn't mean the situations aren't comparable

 

[cutmeamango]

I doubt that is true other than having recovered after letting banks break as in time sequence.
But what do I know?

 

[The Albatross]

Just because they have .1% of the population as the United States doesn't mean the situations aren't comparable

Okay let's compare.

Data shows the US recovered after it bailed out big banks and did not jail bankers.

 

[Chichikov]

Which of these Icelandic banks carry systemic risk?

Apples and oranges.

Landsbanki, Glitnir, Kaupthing.

Iceland's three big banks dwarfed the Icelandic economy, like, an order of magnitude larger (for real, their assets were over 10 times the country's GDP).
It's not even close in the US (the top six banks assets are about 60% of GDP) or in any other western nation as far as I know.

And those banks were pretty insignificant in the grand scheme of things.

If the "grand scheme of things" is the Icelandic economy then they were very very significant.
There's this narrative that when a bank gets too big you can't touch it because it will blow your economy, yet in Iceland, the banks got huge and going after them didn't cause the doom prophecies to come true.

 

[Pedrito]

Okay let's compare.

Data shows the US recovered after it bailed out big banks and did not jail bankers.

I think it's insinuated that the US would also have recovered if it did let the banks go bust. Because, as we all know, Landsbanki failing and Bank of America failing have the same effect.

If the "grand scheme of things" is the Icelandic economy then they were very very significant.
There's this narrative that when a bank gets too big you can't touch it because it will blow your economy, yet in Iceland, the banks got huge and going after them didn't cause the doom prophecies to come true.

I mean on the world stage.

In Iceland, they got so big that they were pretty much impossible to bail out. But internationally, they were still small banks.

 

[Dai101]

[img]http://i.imgur.com/vcnwgMH.jpg[/img]

 

[HomerSimpson-Man]

Okay let's compare.

Data shows the US recovered after it bailed out big banks and did not jail bankers.

Maybe a compromise works best.

Bail out the banks and then jail the bankers? Sounds like win-win!

 

[Aureon]

Kind of wish Iceland would stop getting taken as an example.

There's lots of things you can make work with 300k people and great natural resources.

 

[Chichikov]

Kind of wish Iceland would stop getting taken as an example.

There's lots of things you can make work with 300k people and great natural resources.

It might be true to certain things, but please explain why it's true here.
The small size of the Icelandic economy meant that the bank collapse was a much bigger problem there than pretty much anywhere in the world and it caused massive massive problems.
If anything, doing the same thing in bigger countries would be easier.

 

[King Cobra]

That's nice and all but BoA and JPMorgan have combined assets of almost 5 trillion dollars, with 500 billion in combined revenue alone. While the GDP of iceland is a measly 16.7 billion. These situations are not comparable.

 

[SmartBase]

With a population of just over 300 000, it's not like they had much choice (letting the banks go bust). And those banks were pretty insignificant in the grand scheme of things.

Kudos for prosecuting those who violated the law though.

Yeah, this is incorrect. Already been said that the banks dwarfed the local economy, and it's not like Icelanders are the banks' only customers. The UK used anti-terrorism laws against the country because they couldn't recover lost assets held in Icelandic banks which were allowed to go under, it didn't just affect the locals.

 

[AntoneM]

You guys could at least credit Reddit when you take stuff right off their front page.

You mean from Paul Krugman?

http://krugman.blogs.nytimes.com/20...Opinion&action=Click&pgtype=Blogs&region=Body

http://krugman.blogs.nytimes.com/2012/07/08/the-times-does-iceland/

and dozens of other articles.

 

[Pedrito]

Yeah, this is incorrect. Already been said that the banks dwarfed the local economy, and it's not like Icelanders are the banks' only customers. The UK used anti-terrorism laws against the country because they couldn't recover lost assets held in Icelandic banks which were allowed to go under, it didn't just affect the locals.

Again, I mean internationally. You can't use Iceland as an example and say "see, we totally could have let BoA or City go bust". The demise of icelandic banks affected Iceland and savers in the UK and the Netherlands. As we've seen with Lehman, a major american bank going bust has a ripple effect over the whole world (which show how broken the system is). Now imagine a few of them collapsing at the same time.

 

[TheHeretic]

Landsbanki, Glitnir, Kaupthing.

Iceland's three big banks dwarfed the Icelandic economy, like, an order of magnitude larger (for real, their assets were over 10 times the country's GDP).
It's not even close in the US (the top six banks assets are about 60% of GDP) or in any other western nation as far as I know.

If the "grand scheme of things" is the Icelandic economy then they were very very significant.
There's this narrative that when a bank gets too big you can't touch it because it will blow your economy, yet in Iceland, the banks got huge and going after them didn't cause the doom prophecies to come true.

Iceland is still hooked into global financial markets. Its a different story in the US & UK, where the financial institutions allocate trillions of capital all over the world.

We already have a sneak peek of what happens when that system locks up - money markets and corporate bond markets freeze, businesses rapidly lose their ability to generate liquidity and total panic ensues.

 

[Darksol]

This news makes me happy. Time to play some Asgeir.

 

[SmartBase]

Again, I mean internationally. You can't use Iceland as an example and say "see, we totally could have let BoA or City go bust". The demise of icelandic banks affected Iceland and savers in the UK and the Netherlands. As we've seen with Lehman, a major american bank going bust has a ripple effect over the whole world (which show how broken the system is). Now imagine a few of them collapsing at the same time.

I never said or alluded to anything of the sort, I was simply trying to correct your original post.

I'd still like to see what happens when these bigger banks are allowed to go down (besides the obvious splitting of these companies) out of professional curiosity but I'll have to wait until the next crisis to see it.

 

[Chichikov]

Iceland is still hooked into global financial markets. Its a different story in the US & UK, where the financial institutions allocate trillions of capital all over the world.

We already have a sneak peek of what happens when that system locks up - money markets and corporate bond markets freeze, businesses rapidly lose their ability to generate liquidity and total panic ensues.

I'm 100% not sure what you're saying, but international money stopped flowing into Iceland which is what finally caused the banks to collapse.
And Iceland experienced all those things you're talking about it, to a much larger degree than pretty much any country in the world. What we're seeing here is that going after the banks doesn't exacerbate the problem like the "too big to fail" advocates have us believe.

 

[TheHeretic]

I'm 100% not sure what you're saying, but international money stopped flowing into Iceland which is what finally caused the banks to collapse.
And Iceland experienced all those things you're talking about it, to a much larger degree than pretty much any country in the world. What we're seeing here is that going after the banks doesn't exacerbate the problem like the "too big to fail" advocates have us believe.

No, because global financial markets were bailed out by the US Government. The real test would be looking at Icelands economic performance if banks all over the world were allowed to collapse.

You can't partition off iceland and claim its a self contained economy, it isn't. If liquidity and lending dry up in Iceland you can tap into solvent global institutions. What happens when everything dries up everywhere?

 

[PantherLotus]

I feel like the two takeaways:

-- The US should've prosecuted its bankers

-- The US should've let its banks go bust

are two massively different propositions. Yes to the former, no to the latter. I don't have evidence, other than believing Bank of America is the most horrendous shit this side of war and famine known to mankind.

 

[wildfire]

While the UK government nationalised Lloyds and RBS with tax-payers’ money and the US government bought stakes in its key banks, Iceland adopted a different approach. It said it would shore up domestic bank accounts. Everyone else was left to fight over the remaining cash.

When the bailout occured I was in favor of it. While allowing banks to go bust would help improve our economy in the long term the unemployment rate would be significantly higher and that sort of human suffering isn't something to easily put up with.

But Iceland did come up with a simple idea to mitigate that tradeoff. I'm going to try reading up as much as I can on their economics to figure out if their methods would've worked for our larger more tangled economy.

 

[Chichikov]

No, because global financial markets were bailed out by the US Government. The real test would be looking at Icelands economic performance if banks all over the world were allowed to collapse.

You can't partition off iceland and claim its a self contained economy, it isn't. If liquidity and lending dry up in Iceland you can tap into solvent global institutions. What happens when everything dries up everywhere?

So you're saying international banks played a role in the recovery of Iceland?
Because that's not backed in facts.

And again, Iceland didn't went "YOLO, let's burn all the money", they said fuck you banks, nationalized them and put their bankster on trail and in jail.
The whole point of the article is that it didn't "dry up" in Iceland, Iceland was in much more critical situation than the US, and yet, going after their banks and tightening regulations did not bring the economic apocalypse that people said it would.

I feel like the two takeaways:

-- The US should've prosecuted its bankers

-- The US should've let its banks go bust

are two massively different propositions. Yes to the former, no to the latter. I don't have evidence, other than believing Bank of America is the most horrendous shit this side of war and famine known to mankind.

The title is a bit misleading, Iceland didn't let the banks go bust, they nationalized them.

 

[TheHeretic]

So you're saying international banks played a role in the recovery of Iceland?
Because that's not backed in facts.

And again, Iceland didn't went "YOLO, let's burn all the money", they said fuck you banks, nationalized them and put their bankster on trail and in jail.
The whole point of the article is that it didn't "dry up" in Iceland, Iceland was in much more critical situation than the US, and yet, going after their banks and tightening regulations did not bring the economic apocalypse that people said it would.

The point i've made three times now isn't complicated. What can be done in a tiny country cannot nessecarily be replicated all over the world. Iceland took on their banks debt and pushed the financial burden of repayment from the Iceland taxpayer onto Icelands creditors. The country also instituted capital controls to keep the economy (and their currency) from taking a nose dive. Are you suggesting the US should have done the same thing?

 

[Griss]

Ireland should have done the same. Guaranteed personal accounts and told German and UK investors in Irish banks to take a haircut. Like, a 'blade 1 all over' haircut. Other banks would have moved in to take over the banking infrastructure of the country once they realised that there was money to be made. This is how capitalism is supposed to work. As for the short term, allowing the Irish system to break down and for people to 'starve in the streets' would have exposed European solidarity as a sham, and would never have been allowed to happen. Bluffs should have been called.

Of course, Brian Lenihan was getting advice from people who had been bank executives all his life and made that fateful guarantee that fucked us for decades. Fuck, it could have been so different.

Fair play to Iceland. The whole world told them they were wrong and they stuck to their guns. Well done.

 

[Chichikov]

The point i've made three times now isn't complicated. What can be done in a tiny country cannot nessecarily be replicated all over the world. Iceland took on their banks debt and pushed the financial burden of repayment from the Iceland taxpayer onto Icelands creditors. The country also instituted capital controls to keep the economy (and their currency) from taking a nose dive. Are you suggesting the US should have done the same thing?

You made an assertion that the US couldn't do it because it's a bigger country, you didn't explain why it's true.
Again, the fact that Iceland is tiny only made it harder for them to do it.

And I think the US should've totally went after bankers and thrown a whole lot of them to jail, not sure about putting them in receivership, but I would definitely broken them up like they did in Iceland.
But again, I'm not suggesting that you can take Icelandic solutions as is, the US and Iceland are different countries with different economies, but I am saying that this is further evidence that the "too big to fail" doom prophecies are mostly scare tactics made by people whose interests lay with the banks rather than the people.

I don't accept that there's nothing to learn from it because Iceland is a small country.

 

[davepoobond]

You guys could at least credit Reddit when you take stuff right off their front page.

Creddit?

 

[Cynar]

Just because they have .1% of the population as the United States doesn't mean the situations aren't comparable

Exactly. Doesn't matter how much population or power there is. The US should've done more.

 

[Syph Medwes]

Yea, because TBTF in Iceland is definitely the same as TBTF in USA.

 

[Joni]

Did the people that had money at those banks ever get their money back? And then I mean certainly the people that had money there while not living in Iceland. It is also certainly not the only system, countries have managed to save their banks using tax payer money and actually make a profit on selling those banks afterwards. If the banks just had problems because of the international situation, they would still be profitable institutions. So I'd avoid having banks go bust, but I certainly agree on punishing those responsible.

 

[TheHeretic]

You made an assertion that the US couldn't do it because it's a bigger country, you didn't explain why it's true.
Again, the fact that Iceland is tiny only made it harder for them to do it.

And I think the US should've totally went after bankers and thrown a whole lot of them to jail, not sure about putting them in receivership, but I would definitely broken them up like they did in Iceland.
But again, I'm not suggesting that you can take Icelandic solutions as is, the US and Iceland are different countries with different economies, but I am saying that this is further evidence that the "too big to fail" doom prophecies are mostly scare tactics made by people whose interests lay with the banks rather than the people.

I don't accept that there's nothing to learn from it because Iceland is a small country.

Before you throw them in jail you'll have to prove what they were doing was illegal, which wouldn't be easy. The relaxing of leverage ratios was approved by the Government, as was keeping derivative transactions deregulated and outside mandated financial reporting. The US has few consumer protections when it comes to home loans, so whilst loans with teaser rates would be illegal in many countries, they weren't in the US. With the exception of Goldman Sachs and JP Morgan in late 06/early 07 other financial institutions had no clue what was going on with the securitisation chain, which is why they went bankrupt.

As to why it wouldn't work in the US - there's no clear framework for nationalisation of Banks. The Federal Reserve doesn't have the power to do it and the Government wanted to act quickly. TARP was very sloppy, don't get me wrong, but there were real consequences to delaying to find a more elegant solution.

If you could nationalise them, which I wouldn't oppose, there are still major problems. Iceland's creditors were external and the debt levels were enormous for the economy but small in the context of global markets. In the US many creditors were within the US banking system, and so having them write down their owed debt (assets) makes them even more bankrupt. I don't think breaking them up would accomplish much either, since contagion effects and inter-banking dependance would still be a major issue with a bunch of smaller banks.

 

[Skeyser]

You guys could at least credit Reddit when you take stuff right off their front page.

Yeah let's give them credits for stealing the article from somewhere else

 

[nacimento]

Ireland should have done the same. Guaranteed personal accounts and told German and UK investors in Irish banks to take a haircut. Like, a 'blade 1 all over' haircut. Other banks would have moved in to take over the banking infrastructure of the country once they realised that there was money to be made. This is how capitalism is supposed to work. As for the short term, allowing the Irish system to break down and for people to 'starve in the streets' would have exposed European solidarity as a sham, and would never have been allowed to happen. Bluffs should have been called.

Of course, Brian Lenihan was getting advice from people who had been bank executives all his life and made that fateful guarantee that fucked us for decades. Fuck, it could have been so different.

Fair play to Iceland. The whole world told them they were wrong and they stuck to their guns. Well done.

Ireland could have, for a start, "for European solidarity", stopped being a shady tax haven for non-European firms, instead of screwing its European partners.

 

[Chichikov]

Before you throw them in jail you'll have to prove what they were doing was illegal, which wouldn't be easy. The relaxing of leverage ratios was approved by the Government, as was keeping derivative transactions deregulated and outside mandated financial reporting. The US has few consumer protections when it comes to home loans, so whilst loans with teaser rates would be illegal in many countries, they weren't in the US. With the exception of Goldman Sachs and JP Morgan in late 06/early 07 other financial institutions had no clue what was going on with the securitisation chain, which is why they went bankrupt.

Even in cases where there was a very easy case to be made, like when HSBC laundered money to drug cartels, we didn't throw them in jail, the problem is a lack of will, not the lack of ability.
And while the mortgage case might've been complicated, we could've easily thrown the RICO book at them for shit like the libor or forex scandals.
But we didn't.

As to why it wouldn't work in the US - there's no clear framework for nationalisation of Banks. The Federal Reserve doesn't have the power to do it and the Government wanted to act quickly. TARP was very sloppy, don't get me wrong, but there were real consequences to delaying to find a more elegant solution.

If you could nationalise them, which I wouldn't oppose, there are still major problems. Iceland's creditors were external and the debt levels were enormous for the economy but small in the context of global markets. In the US many creditors were within the US banking system, and so having them write down their owed debt (assets) makes them even more bankrupt. I don't think breaking them up would accomplish much either, since contagion effects and inter-banking dependance would still be a major issue with a bunch of smaller banks.

The good thing about legal frameworks is that we get to write them.
And just to be clear, I'm not saying any of this would've been easy or simple, I merely saying that there are lessons to be learned from Iceland, chief among them that we shouldn't be afraid to take big swings at financial institutions.

 

[King Tubby]

Okay let's compare.

Data shows the US recovered after it bailed out big banks and did not jail bankers.

I was being sarcastic...which I probably should've made more clear.

Exactly. Doesn't matter how much population or power there is. The US should've done more.

I mean, clearly there's a middle ground between "Fuck them, let the bastards rot" and "OH GOD OH GOD PLEASE DON'T DIE" that I think the US should've shaded more towards. That lack of accountability is going to bite the world in the ass. But to behave as if you can really directly compare Iceland's situation to that of the US (and the world at large) is kind of comical.