The British, Dutch and Icelandic foreign ministers met late last week in New York as a side meeting to the United Nations summit happening at the same time. The issue under discussion was Icesave, with the Dutch and British ministers apparently insistent that the entire loan be paid by Iceland, even if it drags on after 2024.
Icelandic Foreign Minister Ossur Skarphedinsson told RUV that although the British and Dutch position on Iceland’s proposed repayment conditions is not yet the formal position of their governments, the conversation at the meeting was nevertheless heated. He said he laid out Iceland’s position and opinions very clearly for the two ministers, but that they did not change their points-of-view. They both maintain that there must be a clear assurance that the full balance of the loan will be paid off, even after 2024.
Final attempts to create a united position between the three nations will be made over the coming days. It is obvious that the British and Dutch will not accept the Icelandic conditions as they stand, Skarphedinsson said.
Also, If I may. The U.S. State of North Dakota established its own “State” bank in the 1800′s. Every bank in the U.S. is financially collapsing because they are “privately” own banks. That is, except North Dakota, Its a state bank (owned by the people of the state) and still is doing extremely well. What does that tell you? Privately owned banks have to be closed down. Profit yes (to a degree) but Usury no, it is demonic.
Islam officially condemns it, Judaism can’t charge “Interest” to fellow Jews, Catholic Theology still condemns it. Now people are learning the hard way why it was and should still be forbidden.
I may be suggesting the wrong solution if I misunderstand debt payments against a loan from the IMF. In the U.S. a additional loan payment on a per month installment can be severely decreased if a additional payment is made, that is, a 13th payment per year. If monthly payments are paid to the lender. What this extra payment does is effect the over all interest rate severely. Every additional payment reduces the interest rate of a outstanding debt on a yearly basis. It kills the Interest rate based on the diminishing balance remaining.
Yes it can be difficult at first, but, the payments decrease and diminish the overall debt/interest gradually as the payment become smaller and smaller as time goes on rather than paying the full interest to criminal bankers. This should be what Iceland should demand as payment installments. Compound interest concept was formulated right out of Hell. Since “Bankers” (crooks and con men) seduce citizens with their scam’s.
Also Iceland can print their own (in-house) (National Currency) to keep your local economy in business. Currencies from external foreign sources can pay the equivalent of any purchase in their own currencies so you may pay foreign debts using these currencies.
Such a payment agreement, using other currencies, should be considered even for paying off national debt.
God Bless Iceland!
From Massachusetts, U.S.
>Remember, Iceland has a right over the artic (I think!?)
Nope.
http://www.dur.ac.uk/resources/ibru/arctic.pdf
Well perhaps I am the only one, but I actually feel sorry for Iceland and its people.
The decisions were taken by the Banks, like here the UK, and yet the real cost gets attributed to the nation.
Notice how the people defending the situation, here in the UK, US and NL are all related to the banking industry in one way or another.
These are the people (aka wannabe quad’s) that think derogative trading and other ‘instruments’ such as sub-primes, default credit swaps, and now dark pools, are all acceptable.
Sure Worldwide investment is required, but should it not be done ethically and be based on results that bennefit the many, and not the few?
Clearly the IMF are a discrace and should either give the loan or not; this should not be based on other events.
Yet again, money is respected more than human life and the ability to live.
Oh and by the way, that google map selling Iceland is very derogative; however, being a web developer it is also very clever.
However it does not help matters, and just puts nation against nation, whereas actually the majority of peoples think the same way about bankers, be they Islandic, British, or Dutch.
All bankers want conflict, just in the areas they decide, and for some reason this is now Iceland. Be prepare when the wolf in sheeps clothing appears and offers ‘the solution’.
Remember, Iceland has a right over the artic (I think!?) and therefore all the gas, oil, diamonds, gold etc.
Perhaps this situation is starting to make sense now…
Welcome to the new country
http://thedutchiceland.com/
Hello Bjarni
“In case there is any doubt, I still fully stand by my original comment from October:”
>>>>You may think you are bigger and stronger, and therefore you can bully Iceland, but you will never break us!
http://www.icenews.is/index.php/2009/09/30/iceland-health-minister-resigns/#comment-95136
That’s fine Bjarni – I have no complaint. I simply stated – “Although I enjoy Bjarni’s sporadic visits to the forum – he somewhat blew his impartiality in his outbursts where a recessive gene surfaced in his comments.”
Your comment is interesting, but my reference was more do to with independent objectivity, and whilst your prior posts had seemed to encapsulate that independence – on this occasion, I perceived a somewhat Wagnerian – winged helmet. spear bearing manifestation of your persona. But that is good – it helps define an individual stance – to the benefit of contributors.
Hello Fisy.
You ask
>Terry, what is wrong with it Bjarni’s comment?
“>You may think you are bigger and stronger, and therefore you can bully Iceland, but you will never break us!”
You ignore the other more relevant points raised within my post.
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/comment-page-3/#comment-105412
But seek to deflect from the issues raised stating.
>I still do not understand why you leaders ( except for Boris ) is letting EU crush City of London last thing that UK really does have that gives the country guranteed income.
That you are not looking to leave EU and join EFTA again ( which UK did cofound ) still amazes me.
Interesting stuff Fisy – but nothing to do with my post.
I will answer Bjarni’s post relative to your initial question.
In case there is any doubt, I still fully stand by my original comment from October:
>>>>You may think you are bigger and stronger, and therefore you can bully Iceland, but you will never break us!
It was made in response to the following enlightening comments by Peter – London:
>>>>The EU best (only) option would be to seize Icelandic assets for the non-payment of debt.
>>>You must be perfectly aware that the UK’s ‘anti-Terror’ legislation used against Iceland could be used in this situation. Anything that is against the economic interest of the UK can be seized/frozen.
If UK/EU thinks we are going to surrender to their bullying, just because they have the power to seize our assets (which btw are not nearly enough to cover the debt), they are sadly mistaken.
One way or another, Iceland WILL get through this mess, even if it means sovereign default.
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/#comment-105412
>You may think you are bigger and stronger, and therefore you can bully Iceland, but you will never break us!
Terry, what is wrong with it Bjarni’s comment?
This used to be the attitude of English too. ( And also never to do the bullying — something that Brown and Darling as Scots never would have in they culture which is why they are doing it as well as the political reasons ).
I still do not understand why you leaders ( except for Boris ) is letting EU crush City of London last thing that UK really does have that gives the country guranteed income.
That you are not looking to leave EU and join EFTA again ( which UK did cofound ) still amazes me.
http://blogs.telegraph.co.uk/news/danielhannan/100020456/ten-reasons-to-leave-the-eu/
Terry you were moved to words and posting action !
( This is exactly kind of thread that does make it good to post and read at IceNews. )
I am out of time now but will post here soon enough.
>Brown appeared on BBC and said “All Icelaldic assets have been frozen”
Not that it’s markedly different, but the actual quote was not quite as damningly incorrect as that:
“We are freezing the assets of Icelandic companies in the United Kingdom where we can.”
http://news.bbc.co.uk/1/hi/uk_politics/7662027.stm
Being generous, there may have been more than one company involved. But that’s a stretch and it looks like he was wrong to say that.
Oops! Sorry again – this last link was to exemplify the thoughts of others.
http://www.icenews.is/index.php/2009/12/06/bill-clinton-could-lead-iceland/#comment-104855
As I said Fisy, eh? I have not retracted my “totally untrue”. The following statement is totally untrue:
“The UK imposed stringent economic sanctions upon Iceland in October 2008. Not just against Icesave’s privately owned Landsbanki but against every single bank in the country thus effectively blockading trade.”
Relevance? Actually, to be fair, I also believe that he should have been shot. You do understand that the “seven times” part, whilst factual, is hyperbole designed to inflame opinion? Of course you do. Anyway, as you like to say, I think that this might be distracting us from the discussion.
Totally untrue ;) . The Treasury report said that it was regrettable that there was nothing more approriate to hand and that there were supplimental and unforseen effects of using it, but they didn’t say that the action itself was wrong.
Be that as it may, it was UK law at the time it was needed. And the quotes that you’ve produced can just as easily (or even more easily) be interpreted to mean that the power needs to be decoupled but that it still needs to exist in some form.
Unlike you Fisy, I shall not accuse you of shamelessly and deliberately misstating what you write in order to strengthen your case. I refer you instead to the following clauses:
AND (emphasis added)
http://www.hm-treasury.gov.uk/d/fin_sanc_notice081008.pdf
Hi Terry,
It was sent to spam because all the links in it made the software suspicious. But don’t worry, I rescued it, as you can see above.
Cheers,
Alex
Hello Alex,
I’ve just tried to post a rather lengthy comment to this thread. Didn’t work. Is there a limit to words. Or is your website wonky!
Fisy
Mike UK Nordic – as far as I can discern has never posted anything other than clinical analysis with a hint of humour. I guess that’s why he is an analyst – and I’m sure he would be just as frank whether addressing Icelandic or UK matters.
I see that in your correspondence with Mike you state.
>I am confused
And seek the seek the support of Bjarni saying –
>If only Bjarni was here still..
Although in a more recent post I see you have warmed to mike ‘Great minds think alike” : ).
http://www.icenews.is/index.php/2009/12/09/former-kaupthing-men-sentenced/#comment-105365
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/comment-page-3/#comment-105073
Although I enjoy Bjarni’s sporadic visits to the forum – he somewhat blew his impartiality in his outbursts where a recessive gene surfaced in his comments -
>You may think you are bigger and stronger, and therefore you can bully Iceland, but you will never break us!
http://www.icenews.is/index.php/2009/09/30/iceland-health-minister-resigns/#comment-95136
Also
>It is unlikely that the threat of derailing the EU application, will sway any of the Icelandic MP’s that are against it to accept the IceSave agreement. In fact, it might actually have the opposite effect (we don’t like being bullied).
http://www.icenews.is/index.php/2009/07/29/more-members-of-parliament-against-the-icesave-deal/#comment-87030
Following a question from Knowless – he raised as as to whether – “any other small country, who have had to face such a sudden and brutal collapse, acted with more positive effect?”
I questioned whether the answer might be Ireland?
http://www.icenews.is/index.php/2009/11/26/brown-belatedly-responds-to-iceland-pm%E2%80%99s-icesave-letter/#comment-104261
The response by Knowless was contained within the below link where you make comment on his statement.
Fisy said -“Knowless did write”:
>It’s ironic that the leading critic of the Ireland’s path to self destruction over the
past 6 years, David McWilliams, has pointed to Iceland’s decisive approach in >taking a few important decisions head on as a contrasting example of how Ireland
has dithered and dragged indecisiveness before finally stumbling on their final solution, borrow Eur 60bn. to bail out the banks by buying up the bad debts at close enough to their full over inflated value.
Fisy – you respond
“Yes not bailing out is best thing that can be done in circumstances. Bankcrupcy process of liquidations as has finally began to happen here.”
http://www.icenews.is/index.php/2009/11/28/icelandic-president-urged-to-say-no-to-icesave/comment-page-1/#comment-105051
Although you accuse the UK of having a -‘beggar thy neighbour’ stance – In this comment – you seem to endorse this attitude in respect of the failure of your own banks (below links refer)
http://www.icenews.is/index.php/2009/01/19/upheaval-calls-for-fleece-revolution-in-iceland/#comment-60831
http://www.icenews.is/index.php/2009/08/07/icesave-deal-still-controversial-in-iceland-and-still-not-green-lighted/
Fisy – you have frequently been a critic of UK policy. On many occasions you have referred to UK taxpayers ‘gurgling’ money down the drain in support of banks.
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/#comment-96181
Again, you have made frequent reference to other aspects of UK decisions, for example – the selling of gold reserves.
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/comment-page-3/#comment-105063
It may be that you cite these to support your assertion that Brown/Darling have behaved incompetently – a constant theme of your posts.
Maybe you have a point, but I would tend to agree with the analysis of Robert Boyes – where he states that although use of anti- terrorist legislation may have been inappropriate – it was seen necessary as a defensive action. Again, without labouring the point – “Iceland was floundering at this time with at best an unclear message, and at worst a denial of responsibility”.
http://en.wikipedia.org/wiki/Icesave_dispute
Whatever the flaws of UK internal decisions – the consequences will be borne without detriment to others, by the UK taxpayer, their children and possibly grandchildren in order to maintain our credibility – (as Ireland).
I was interested to see a comparison by Knowless relating to the relative debt incurred by Ireland.
http://www.icenews.is/index.php/2009/11/26/brown-belatedly-responds-to-iceland-pm%E2%80%99s-icesave-letter/#comment-104868
There has been much said about Ireland – the joke about ‘what’s the difference between Iceland and Ireland….. Answer one letter and six months. Well six months and more have passed. Knowless has made reference to Anglo Irish as – ‘Bob the Builders Bank.’, and referred the general deficiencies of the Irish economy and infrastructure.
http://www.icenews.is/index.php/2009/11/26/brown-belatedly-responds-to-iceland-pm%E2%80%99s-icesave-letter/#comment-104868
http://www.icenews.is/index.php/2009/11/26/brown-belatedly-responds-to-iceland-pm%E2%80%99s-icesave-letter/#comment-104905
However, my point is – that other countries seem to recognise that there is a heavy cost to bear for the miscreant behaviour of their banks, in order to sustain a reputation of reliability for investors/depositors, and as a business partner.
I sense an attitude in Iceland of ‘we tried – it didn’t work – guarantees, what the hell – move on’ – without recognition of the consequential impact on your reputation as a trustworthiness as a nation.
>”This tastless joke going around about the shooting to death of innocent man might be intented to show that arbitrary exectuion is ridiclous but also it just does cheapen human life.This historical respect for liberty of the individual to go unmolested in UK is it now gone from the current generation ? It is now as it is in Germany and Spain and Italy where police are not any longer just like other people doign a job but are now ofshoots of the military?”
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/#comment-105063
Well said Fisy – from the backwaters of Iceland, where no one has had their arses blown off – because you are not in the front line, (or second, or third) – (yes, thanks for the fish in WW2).
The UK has just lost it’s 100th armed force member killed during 2009 in Afghanistan.
http://news.bbc.co.uk/1/hi/uk/8401969.stm
You talk about – ‘arbitrary execution’ and state ‘where police are not any longer just like other people doing a job but are now offshoots of the military?”.
I hope that you never have to travel daily on a tube, or bus under the constant threat of terrorism.
How would your police react ?…..with more expertise and efficiency? – Hopefully we will never know.
http://www.icenews.is/index.php/2009/12/06/bill-clinton-could-lead-iceland/#comment-104855
Brumley wrote :
>So was it totally horrible? No doubt.
After retracting you “Totally untrue.” and finally agreeing to the horribleness of Freezing order , I think now you under stand the ” what did I say that you take offence to? ” part.
>But was it a deliberate attempt to apply sanctions? No.
Nor was there deliberate attempt to kill an innocent man, in Jean Charles de Menezes case — but was still shot seven times in the head with the hollow point bullets.
Point is that Darling and Brown should never have used this power that HM Treasury had in this Icelandic case.
And that power should never have been given in first place as that UK Privy Council report of 2003 reviewing this 2001 law says :
” Our View
The circumstances in which assets might be frozen are broad. There is no mechanism in the legislation for appeal or independent review of any such order once approved. The Government has argued that:
a. international commercial agreements would act as a check on their use outside genuine emergencies;
…
These safeguards may be adequate for truly emergency powers to be exercised in time of war, but their adequacy remains untested outside those very particular circumstances.
…
The provisions of Part 2 are intended for much wider use. In our view, freezing orders for specific use against terrorism should be addressed again in primary terrorism legislation, based on the well-tested provisions of the Terrorism (United Nations Measures) Order 2001.
Freezing orders for other emergency circumstances, and the safeguards which should accompany them, should be reconsidered on their own merits in the context of more appropriate legislation for emergencies; the present Part 2 powers should then lapse. The forthcoming Civil Contingencies Bill would seem to be a suitable opportunity.”
In summary, they said Part 2 of the Law should be repealed because it it too broad, and thus open to abuse.
In the case of Iceland and Landsbanki HM Treasury exercised the powers conferred by sections 4 and 14 of Part 2* and Schedule 3** of yes, the *Anti-terrorism, Crime and Security Act 2001* to freeze Landsbanki’s assets but in which:
“3.—(1) The following are specified persons for the purposes of this Order—
(a) Landsbanki;
(b) the Authorities; and
(c) the Government of Iceland. ”
http://www.opsi.gov.uk/Acts/acts2001/ukpga_20010024_en_16#sch3
http://www.opsi.gov.uk/Acts/acts2001/ukpga_20010024_en_2#pt2-pb1-l1g4
Brown appeared on BBC and said “All Icelaldic assets have been frozen” this comment was the cause for the confusion about the terrorist laws and ruined the Icelandic economy, Brown may have thougt he was right at the time, being an idiot, but ther damage was done,
Mike is right about KB, it was dead in 2006, the corpse was being kept in a cloud of smoke to hide the fact that it was rotting away,
maybe we should hire Steven Hawkins, stuff all the information we have on this pile of sh*t into his head and ask him if he could find the huge black hole all the money those idiots stole disapeared into.
eh? You’ve lost me Fisy. You’ll see in my response to Jim that you quoted back on Dec 1st that I acknowledge that the freezing order was misinterpreted (which, incidentally, I did not believe to be the case back in Nov 2008 – see, I can learn :) ). So there’s no need to link to William Watson, especially as he was just here because of elections in Scotland.
So was it totally horrible? No doubt. But was it a deliberate attempt to apply sanctions? No.
I’ll repost what I actually said in response to Jim’s post (included below) and you can try to make something of that:
On Dec 8, 2009, Bromley86 said :
http://www.icenews.is/index.php/2009/09/28/british-and-dutch-stance-on-icesave-hardening/#comment-105171
I Fisy write:
>>You start off by disengenously posting about the Landsbanki freezing order when the facts of what happened have been read by you no doubts over a year ago
>>– and then just try and ignore the correction and just try to brush whole situation under conversational carpet.
Brumley does reply :
” Nothing disingenuous there Fisy. The freezing order is quite clear to someone without any legal or banking knowledge (i.e. me). It applies to other entities only as they relate to Landsbanki. ”
On Dec 9, 2009, Jimbo (original Jim) said:
>>“The freezing order is quite clear to someone without any legal or banking knowledge (i.e. me). It applies to other entities only as they relate to Landsbanki.”
>>” That old chestnut, but you know it wasn’t clear! All EEA financial institutions interpreted the freezing order as also applying to the Icelandic state; their interpretation changed only after the UK clarified the scope of the order. Those are facts.
>>My opinion is that the UK Treasury behaved unacceptably in not clarifying it much sooner ”
Brumley then does write :
” When we looked at it in this thread back in October, it’s obvious from reading the order what it actually requires. As a simple exercise in reading comprehension, I don’t think you disagreed with that. ”
Well let’s anayze what UK HM Treasury did do and why they did have to issue this ” clarification ” because I think that reading comprehension was very different for actual people in world wide banks than yours seem to be Brumely. But that is because you are being as usual disengenous in your statements and your argumenting ..
Yes fact is It was totally horrible for Icelander during that over two weeks time being disconneted from the world banking system because of Darling and Brown actions.
.. as Jim again do point out you ++ do ++ remember Brumley that on 17th October 2008 UK HM Treasury have to release a detailed 44 point, five page official follow-up notice ‘ clarifying ’ many basic points of confusion from the banks that did put Iceland under a financial embargo for over two weeks
.. because you were given facts long time ago here in this thread which is one refered to above ( I think ) put not post link to because it does make you look dishonest here in this thread not to mention it — but that is okay I will post link to it to make sure that you do read it :
http://www.icenews.is/index.php/2008/10/29/portraits-of-icelandic-terrorists-exhibited/#comment-33240
>>I use the straw men description correctly Brumley
>Nope. You’ll be unsurprised to hear that I’ve checked with wiki and you really don’t.
Instead of misdirecting discussion into this subject here in this thread instead I have done and posted a reply to your silliness reply on this subject over in actual thread where it was going on :
http://www.icenews.is/index.php/2009/09/24/david-oddsson-becomes-newspaper-editor/comment-page-1/#comment-105282
So we can keep discussing on track over here in this thread.
When we looked at it in this thread back in October, it’s obvious from reading the order what it actually requires. As a simple exercise in reading comprehension, I don’t think you disagreed with that.
The fact that it was misinterpreted and that this was not rectified immediately is a different matter, but there’s nothing sinister in the way I’ve interpreted the actual words (which seems to be what Fisy is implying with his disingenuous, disgusting, etc. remarks).
Fisy – Just dropped by and saw your post. OK – haven’t got the accounts to hand but here is what I recall (and these comments are valid to a certain extent to all three banks):
1. There was never enough detail provided by the banks in their accounts. (Compare them with Barclays say.) A rule of thumb in analysis is to assume that if a bank has glossed over something then there is a problem there. To give a specific example the three banks resolutely refused to provide audited breakdowns of their operations – they consolidated everything – sectors and geographic operations. The result was that you couldn’t see what was happening – but we guessed. Cross-holdings, circular valuations, implicit self-supporting structures: we now know all those assumptions to have been true. So that’s the big one: lack of detail and breakdown. You don’t really need to look any further when reading the accounts – the numbers are consolidated. Any analyst has alarm bells ringing when he or she sees that.
2. Bad loans provisions: these were laughably and unbelievably low. When we asked detailed questions on their precise definitions about what constituted a bad loan we got vague answers. Frankly no one believed the bad loan numbers and the banks never rebutted that disbelief.
3. The maturity profiles of their debt were all horribly front-loaded (they couldn’t hide this). The banks were busy refinancing all the time. Equally, because those maturities never really lengthened from one year to the next (i.e. from one set of accounts to another) you can see that they were being forced to refinance with short-dated (and expensive) bonds.
4. The three banks indulged in buying assets that were highly volatile: property and retail. They priced those assets at very optimistic levels. (My assertions about the banks being “dead” from 2006 onwards relate to points 2, 3 and 4 – they didn’t have enough money to cover their losses. From 2006 they were just renewing their debt at higher and higher levels.)
5. Even worse, the three banks all engaged in a tactic which they announced loudly, namely that not only did they provide loans to their customers but they also took equity stakes. Far from laying off risk, this increased the risk for the three banks. Even a small fall in property values (in particular) would wipe them out since they were doubly exposed (in fact this double exposure works in a multiplicative way rather than a simple addition, since the a joint fall of bonds-equity in an entity becomes self-feeding).
6. In the case of Kaupthing they engaged in a whole host of takeover accounting wheezes: capitalising loans etc. These accounting tricks depend upon a stream of takeovers, you need one a year in simple terms. Each takeover throws up more dust so you can’t see what’s happening in the company. And in such cases the takeovers need to become bigger and bigger. Kaupthing followed this classic trail – they were so naive to assume that we hadn’t seen those sorts of accounting tricks. MBA students are told how to do it and how to spot it! (Yet Kaupthing could clearly be seen to revalue upwards the assets of the banks it had taken over – usually because the banks taken over had had a prudent method of valuation rather than a wildly optimistic method.) When the takeovers stop, then you can see the numbers clearly. My view is that the failed takeover of NIBC would have been the trigger for the collapse of Kaupthing irrespective of anything else. The whole manner and tone of the senior managers after they pulled out of NIBC (January 2008??) was “Well, that’s it!” Ironically Kaupthing had targeted NIBC for its asset base, but then they discovered – late in the day – that NIBC was sitting on massive losses to those assets which couldn’t be massaged.
7. Oh, here’s another I’ve just remembered related to 1. The accounts don’t reveal where their funding came from, and in certain cases, they falied to quote the terms of those loans.
8. Currency handling – this seemed to be an art form to the banks (again Kaupthing excelled at this). Although it was only a minor issue we wondered why they were so sloppy.
9. You need to read the accounts of the three banks in conjunction with those of other Icelandic companies. I’ve referred to cross-ownerships already: the classic case was Kaupthing and Exista.
Can’t recall the numbers off hand but I think Kaupthing owned 10-15% of Exista and Exista owned 25-30% of Kaupthing. But these cross-holdings went further – much further. Kaupthing for example used Exista as a conduit for loans which then “disappeared”. Exista would take equity stakes in companies Kaupthing had taken equity stakes in (look at accounts of any Icelandic company – Eimskip, Icelandair etc and you will see the same names cropping up again and again). Another example (but better hidden) is Samson and Landsbanki. And here the cross-holdings become horrible because Kaupthing lent the money to Samson to buy the privatized Landsbanki. So when you looked at the accounts of these entities you needed to disentangle all that relationship. What you are looking at is a money-go-round – and the valuations put on the various entities are pure fictions. When you strip those valuations out of the accounst you see the insolvent entities I’m referring to.
Anyway, hope that satisfies! I’ve got a meeting to go to!
“The freezing order is quite clear to someone without any legal or banking knowledge (i.e. me). It applies to other entities only as they relate to Landsbanki.”
That old chestnut, but you know it wasn’t clear! All EEA financial institutions interpreted the freezing order as also applying to the Icelandic state; their interpretation changed only after the UK clarified the scope of the order. Those are facts. My opinion is that the UK Treasury behaved unacceptably in not clarifying it much sooner.
Nothing disingenuous there Fisy. The freezing order is quite clear to someone without any legal or banking knowledge (i.e. me). It applies to other entities only as they relate to Landsbanki.
Likewise, nothing was swept anywhere. Again, what did I say that you take offence to?
Nope. You’ll be unsurprised to hear that I’ve checked with wiki and you really don’t. But, as an example of introducing an irrelevant topic in order to divert attention from the original issue, please see:
Mike UK Nordic analyst did write :
>Fisy really! I admire your persistence, but I wonder about your ability to understand things.
Well that is why I am posting here to ask for you to make those clarifications and make them concrete.
Because despite you quite enjoyable style of posting as usual I am sorry to say it does feel like in the end of this thread you are dodging the questions being asked by me. But maybe you missed them so let me just ask again :
>Please will you give some concrete example of what you think was badly wrong in
>balance sheet of Kautphing 2006, 2007 and 2008. And compare it to other bank
>in UK and US or Germany would you please.
>( And for Landsbanki too compared to them if you have information that we public do not have .)
- – - – - – - – - – - – - – - – - – - – - -
Mike wrote :
>More generally … Kaupthing was dead by spring 2006 – there was no way back from its position at that stage. Taking deposits outside Iceland was a desperate, and inappropriate, act to shore up the crumbling balance sheet.
>” ..as I’ve [ Mike ] posted before Kaupthing was insolvent by the start of 2006. The decision to become a deposit-taker in the UK, Holland and Germany was a move that they hoped could fill the holes of their loss making activities. ”
You have made this asertions here and also here :?http://www.icenews.is/index.php/2009/05/18/islandsbanki-gains-icelandair-group-investment/#comment-76976
>The three banks were very sick in 2005.?
>The three banks were terminally ill in 2006.
?>The three banks were dead but still standing upright in 2007.?
>The three banks fell over in 2008.
- – - – - – - – - – - – - – - – - – - – - -
What I am getting at is facts please. I did try to give you courtesy before of taking specific figures from accounts of Icelandair and British Airways in comparison for your assertions about Icelandair.
Given that you make this strong assertions about the three banks and Kaupthing in specifically them without explaining what exactly brings you to those conclusions.
( After this is replied then I will move conversation over to the banking report, FME vs banks, stress testing and those other juicy subject . )
Mike ( UK Nordic analyst ) did write:
>>(2) Profits are an opinion, they are not factual despite their misleading numerical exactitude. Analysts rarely take any notice of profits. And tax authorities NEVER
>>base their tax calculations on published profits. Why? Because profits are a
>>fiction. (I can make any company profitable if you want me to! And most
>>companies which collapse were prfitable right up to the last minute. It’s lack of cash that kills companies, not losses.)
I Fisy then did write :
>When corporate taxes are high of course profits suddenly magicly go down and
>instead there is lot retained earnings and so the company has its lots of expenses.
>This goes to long way to show why corporations from 1930s until the 1980s they
>directors could live a good life on big office buildings and private aircrafts, etc all ”
>deductible ” expenses because other wise the government would take it all in
>company tax.
And Mike did reply :
>You don’t get it do you – to make this absolutely clear: there is absolutely no
>linkage between the amount of corporate tax paid by a company and the profits as
>reported in the audited accounts. The idea that a company that gets hit with a high
>tax bill can reduce a future tax bill by retaining earnings or having lots of
>expenses is totally laughable. Tax authorities use their own measures for the
>taxation of companies and the rules they use are complex and have nothing to do
>with accounting standards.
>But I can tell you that a tax officer who sees that an expense has been made that
>doesn’t meet certain requirements will ensure that expense is taken to be a
>taxable amount. You can’t avoid a tax just by spending! My points remain: (1)
>Reported profits are a fiction – a pure invention by the accountants, and (2) Tax
>authorities do NOT use reported profits in any way to calculate the coporate tax
>payable.
So let me just clarify, the tax that was paid to the Icelandic governement ( and to for exmaple UK Inland Revenue to lesser degree from operating subsidiaries like Kaupthing Singer and Friedlander ) was not a sign of actual profits ?
I am confused — that money that was paid does indicate healthy banking operations; that there was money there that the governments did extract in tax during that period.
I think the question that answers this issue is how much money did actually flow in income to Icelandic and UK treasuries from the Icelandic banks during period after the Icelandic banks were privatized ?
If only Bjarni was here still..
On Dec 2, 2009, Jimbo (the original Jim) said:
>Fisy – Police admitted killing Jean Charles de Menezes in error. They were looking for his naughty brother Dennis.
This tastless joke going around about the shooting to death of innocent man might be intented to show that arbitrary exectuion is ridiclous but also it just does cheapen human life.
This historical respect for liberty of the individual to go unmolested in UK is it now gone from the current generation ? It is now as it is in Germany and Spain and Italy where police are not any longer just like other people doign a job but are now ofshoots of the military ?
>@Fisy. Not sure what you took offense to. Everything I posted was factual and neutral.
You start off by disengenously posting about the Landsbanki freezing order when the facts of what happened have been read by you no doubts over a year ago
– and then just try and ignore the correction and just try to brush whole situation under conversational carpet.
Much in same way you do you best to brush under the facts of Gordon Brown selling a lot of UK gold in an incredibly negligent way in 1999 :
http://www.icenews.is/index.php/2009/11/28/icelandic-president-urged-to-say-no-to-icesave/#comment-105050
Jim did write more:
>Fisy’s favourite relative appears to be Aunt Sally.
I do not like Brumley’s straw men+. Because he puts them up to try and tear then down in his attempt to mis represent the views of others — others like me.
But now this interval is over and we can get back to some serious discussing I hope.
+see here http://www.icenews.is/index.php/2009/09/24/david-oddsson-becomes-newspaper-editor/#comment-103932 of course I use the straw men description correctly Brumley.
Fisy’s favourite relative appears to be Aunt Sally.
lol. I had to get my wife over to explain that one Jim, but then I didn’t get the South Park fishsticks one immediately either :) .
@Fisy. Not sure what you took offense to. Everything I posted was factual and neutral. Again we see your descent into ad hominem, which is amusing as you’re the only one who ever mentions that phrase here. Along with other usenet classics like “strawman” (incorrectly, I might add).
Mike said
“How on earth can you bring yourself to try and defend Kaupthing? ”
Obviously he did/does have some personal connection to them.
Fisy – Police admitted killing Jean Charles de Menezes in error. They were looking for his naughty brother Dennis.
Fisy really! I admire your persistence, but I wonder about your ability to understand things. I’ll take three sentences of yours:
“When corporate taxes are high of course profits suddenly magicly go down and instead there is lot retained earnings and so the company has its lots of expenses.”
You don’t get it do you – to make this absolutely clear: there is absolutely no linkage between the amount of corporate tax paid by a company and the profits as reported in the audited accounts. The idea that a company that gets hit with a high tax bill can reduce a future tax bill by retaining earnings or having lots of expenses is totally laughable. Tax authorities use their own measures for the taxation of companies and the rules they use are complex and have nothing to do with accounting standards. But I can tell you that a tax officer who sees that an expense has been made that doesn’t meet certain requirements will ensure that expense is taken to be a taxable amount. You can’t avoid a tax just by spending! My points remain: (1) Reported profits are a fiction – a pure invention by the accountants, and (2) Tax authorities do NOT use reported profits in any way to calculate the coporate tax payable.
OK second sentence:
“So why based on Basel II stress tests where Icelandic banks showing as healthy by world standards in middle of 2008 more so than UK banks.”
Because there is a huge difference between the existence of regulations and their application. Equally, Basel II is taken to be a base – upon which further regulations are supposed to be built. Iceland never did that. Read this report on regulation in Iceland.
eng.forsaetisraduneyti.is/media/frettir/KaarloJannari__2009.pdf
Let me point the way for you. Page 29 makes it clear what you say is correct:
“The rules and regulations are in line with EU directives and the Basel recommendations.”
but then, and it is a huge but, the report shows how the three Icelandic banks just ignored those rules and were never held to account – the FME simply lacked the power to do anything about it. Try this (also page 28)
“The banks disagreed with the FME on the definition of large exposures and how to connect
borrowers. The quality of reporting on large exposures was also an area of disagreement. There were differences among the banks and their willingness to accept the FME’s findings”
The banks ***disagreed*** with the FME. Hell! I’d like to see any bank in Germany, France, the UK or US “disagree” with their regulator! That would be front page news and no doubt. In this case you might as well say “The criminals disagreed with the police that they had committed a crime.”
And then this on page 30:
“The banking culture in Iceland seems to have been rather immature in that the banks did not give much consideration to the underlying purpose of the regulations and sought ways to circumvent them as much as they could if it served their (or their owners’ and customers’) perceived interests. The legalistic tradition and the lack of power also hindered the FME from imposing its view on banks. The new Basel II rules under the so-called Pillar 2 should give the supervisor greater discretion to intervene when the composition of the credit portfolio is cause for concern. The EU directives offer countries the possibility of adopting provisions more stringent than those in the directives. Iceland has not made use of this
option.”
How clear is that? The banks had no interest in the application of the regulations and the Icelandic parliament never passed the necessary laws to ensure conformance.
So now I hope you can see the difference between saying “The EU regulations were in place in Iceland” and “The EU regulations were not obeyed in Iceland”. So let’s not have any more of this nonsense about how the Icelandic banks met the same standards as everyone else – they didn’t!
One last sentence of yours:
“But this bond placements was taken. So given environment of investing that means they were able to raise they money from people that did take a risk.”
Well, first of all you don’t know what it means for a publicly listed company to be reduced to taking a private placement. It is a sign that the game is almost up. The point is that the terms of a private placement are kept secret – and that’s because they are usually very destructive. My point is that at that moment everyone knew the end was near – except for people who don’t understand these things and come up with justifications such as yours. I’m amazed that you can still make the point even given the evidence of what state the bank was in and what eventually happened to it. Are you saying the whole financial world was wrong to say “Oh oh! Private placement! Kaupthing is going down!”?
And what’s more we were all right to be suspicious since the money for this bond placement came from the bank itself. It was channeled out of the bank, through a third party, and then magically appeared back at the bank! Another example of how the Icelandic banks happily engaged in duplicitous and illegal actions. How on earth can you bring yourself to try and defend Kaupthing? Go and read the loan book.
Mike ( Nordic UK analyst ) did write some time ago:
in reply to me :
>>“Kaupthing was a well run private bank group run by investment bankers, profitible to the end”
Technical points:
>(1) Kaupthing was a publicly listed company – its shares was tradable on the Iclandic stock exchange. Private enterprises have closed, and usually small, groups of owners – often members of a family. The issue is important because publicy listed companies have different legal and disclosure requirements.
Yes it was a public company. I do of course understand that. I was I refer to the business of the bank in whole.
It was in market of ” private banking ” that it primarily did make loans to individuals and they companies and that it primary business was not depositor taking from retail customer.
Kaupthing bought Singer and Fried lander for example ( just after Tony Shearer thought he was in for cushy CEO job after after playing second fiddle for so long — no wonder he was bitter when removed for job performance reason. )
>(2) Profits are an opinion, they are not factual despite their misleading numerical exactitude. Analysts rarely take any notice of profits. And tax authorities NEVER base their tax calculations on published profits. Why? Because profits are a fiction. (I can make any company profitable if you want me to! And most companies which collapse were prfitable right up to the last minute. It’s lack of cash that kills companies, not losses.)
When corporate taxes are high of course profits suddenly magicly go down and instead there is lot retained earnings and so the company has its lots of expenses.
This goes to long way to show why corporations from 1930s until the 1980s they directors could live a good life on big office buildings and private aircrafts, etc all ” deductible ” expenses because other wise the government would take it all in company tax.
>More generally … Kaupthing was dead by spring 2006 – there was no way back from its position at that stage. Taking deposits outside Iceland was a desperate, and inappropriate, act to shore up the crumbling balance sheet.
You have made this asertions here and also here :
http://www.icenews.is/index.php/2009/05/18/islandsbanki-gains-icelandair-group-investment/#comment-76976
>The three banks were very sick in 2005.?
>The three banks were terminally ill in 2006.?
>The three banks were dead but still standing upright in 2007.
?>The three banks fell over in 2008.
>” ..as I’ve [ Mike ] posted before Kaupthing was insolvent by the start of 2006. The decision to become a deposit-taker in the UK, Holland and Germany was a move that they hoped could fill the holes of their loss making activities. ”
I conced that Glitnir just had taken too much and had loans too big to pay back after Lehmans closed all credit. Landsbanki also likely even though actual balance sheets have not been put out for us to understand what did go on between 2005 and 2008.
But I do not in any way condede this comment about Kauthping.
If you take mark to market then in early 1990s Citibank Group was dead but still standing upright and many other banks as you say during history.
This is whoel things about assets of banks they do come and go in vlaue it does depend on the accounting methods used.
So why based on Basel II stress tests where Icelandic banks showing as healthy by world standards in middle of 2008 more so than UK banks.
Please will you give some concrete example of what you think was badly wrong in balance sheet of Kautphing 2006, 2007 and 2008. And compare it to other bank in UK and US or Germany would you please.
( And for Landsbanki too compared to them if you have information that we public do not have .)
For insolvency your liabilities are to be greater than your assets. The other reason is inability to meet your debts as they fall due. Either would makes a bank insolvent just like for any other company . I don understand that of course being no friend of bankcrupts trading with fraud.
>At the end it was reduced to making “private” bond placements – one of which turned out to be totally false. I expect Kaupthing to be first up in any law court.
But this bond placements was taken. So given environment of investing that means they were able to raise they money from people that did take a risk.
>I always try to keep to the facts and avoid any “personality” issues but Fisy, really!. If you believe what you wrote then there is no real point in trying to argue the issue.
I am prepared as always to debate on facts but we cant both have our own facts. Please bring forth the ones that you base you strong opinion on.
>Maybe you should read and analyse the accounts of Kaupthing – and Exista – before making such statements. (Have a copy of Terry Smith’s “Accounting for Growth” to hand as you go through the accounts. Kaupthing and Exista will provide great case studies for future accounting students.)
I did this already when you made the assertion about Icelandair hear :
http://www.icenews.is/index.php/2009/05/18/islandsbanki-gains-icelandair-group-investment/#comment-77899
but maybe you did miss it.
We should do same analysis with Kauthping at least. Maybe Landsbanki too.
Other wise depiste you general obvious knowledgable ness it look like you are blowing hot air.
Jim said :
>>even HM Treasury would probably concede that in retrospect and treat it as a lesson learnt.
>
Brumley chimes in :
>Absolutely, as would I
As the London police did treat the shooting of Jean Charles de Menezes as a ” lesson learnt “?
Just a case of Mistaken Identity. Acceptable collateral damage..
No these both were not just ” accidents ” they were inevitble with the shoot to kill policy in the hands of the police, and the sections used against Landsbanki and central bank and government of Iceland in hands of Chancellor Darling under Anti-terrorism, Crime and Security Act 2001.
What a weak and disgusting attitude you showed here Brumley ( after first trying to deny what happened although you know it well enough because I and others keep reminding you including Jim ).
As gummih did say well :
>It was an incredibly barbaric act and it’s unforgivable.
>even HM Treasury would probably concede that in retrospect and treat it as a lesson learnt.
Absolutely, as would I.
“the Freezing Order itself is quite clear on the matter”
To play safe, all British financial institutions initially interpreted the scope more broadly than the technical minimum. The UK government should have clarified the scope sooner; even HM Treasury would probably concede that in retrospect and treat it as a lesson learnt.
Sorry, missed this thread Jim.
>For approx a fortnight, UK financial institutions understandably viewed the former as equivalent to economic sanctions against every financial institution in Iceland.
Well, that may have been the case, but the Freezing Order itself is quite clear on the matter:
“a freeze on funds owned, held or controlled by the Icelandic bank Landsbanki, including those owned, held or controlled ***in relation to that bank*** by the relevant Icelandic Authorities or the Government of Iceland.”
It goes on the elaborate, but that opening paragraph says it just as well.
>>The UK imposed stringent economic sanctions upon
>>Iceland in October 2008. Not just against
>>Icesave’s privately owned Landsbanki but against
>>every single bank in the country thus effectively
>>blockading trade.
>
>Totally untrue. Cite?
The Landsbanki Freezing Order 2008 ( http://www.hm-treasury.gov.uk/d/fin_sanc_notice081008.pdf ) also froze Landsbanki’s assets belonging to the Central Bank of Iceland and the Government of Iceland. For approx a fortnight, UK financial institutions understandably viewed the former as equivalent to economic sanctions against every financial institution in Iceland.
>>The British put economic sanctions against an
>>EEA EFTA nation.
>
>Again, not so.
Actually, that was effectively true for a couple of a weeks. Brown, Darling and HM Treasury were initially too broad and didn’t qualify the scope sufficiently.
Totally untrue. Cite?
Again, not so.
Hattrick! Even if the entirety of the Icesave guarantee is paid, the UK and NL governments have to pick up the tab for the amounts above EUR 20k (in the NL case, the depositors themselves pick up the tab for everything above EUR 100k). So I don’t see a profit here.
Regarding responsibility, even those who argue that it is shared between Iceland & UK/NL agree that the prime responsibility was Iceland’s.
“The UK imposed stringent economic sanctions upon Iceland in October 2008. Not just against Icesave’s privately owned Landsbanki but against every single bank in the country thus effectively blockading trade.”
Blame Brown and Darling for that! I doubt anyone else in Britain thought the sanctions should extend to all the other banks (including the Central Bank)… I was on a trading floor when that news came through from compliance and quite a few people were stunned.
The UK imposed stringent economic sanctions upon Iceland in October 2008. Not just against Icesave’s privately owned Landsbanki but against every single bank in the country thus effectively blockading trade.
The British put economic sanctions against an EEA EFTA nation. Economic sanctions with the use of legislation passed to prevent terrorist funding.
It was an incredibly barbaric act and it’s unforgivable.
Now the british and dutch have joined forces to use heavy handed tactics to squeeze every last cent they can out of the Icelandic people. With heavy handed tactics the blatant manipulation of the IMF stands out as far as arrogance goes.
All this to make a profit from a situation they are also responsible for.
Fisy – The terms private/public are often used interchangeably to distinguish from the term state. For example, privatisation can transform state assets to become public companies. In the UK, private schools are also called public schools, to distinguish them from state schools. All very confusing…
Fisy writes:
“Kaupthing was a well run private bank group run by investment bankers, profitible to the end”
Technical points:
(1) Kaupthing was a publicly listed company – its shares was tradable on the Iclandic stock exchange. Private enterprises have closed, and usually small, groups of owners – often members of a family. The issue is important because publicy listed companies have different legal and disclosure requirements.
(2) Profits are an opinion, they are not factual despite their misleading numerical exactitude. Analysts rarely take any notice of profits. And tax authorities NEVER base their tax calculations on published profits. Why? Because profits are a fiction. (I can make any company profitable if you want me to! And most companies which collapse were prfitable right up to the last minute. It’s lack of cash that kills companies, not losses.)
More generally … Kaupthing was dead by spring 2006 – there was no way back from its position at that stage. Taking deposits outside Iceland was a desperate, and inappropriate, act to shore up the crumbling balance sheet.
At the end it was reduced to making “private” bond placements – one of which turned out to be totally false. I expect Kaupthing to be first up in any law court.
I always try to keep to the facts and avoid any “personality” issues but Fisy, really!. If you believe what you wrote then there is no real point in trying to argue the issue. Maybe you should read and analyse the accounts of Kaupthing – and Exista – before making such statements. (Have a copy of Terry Smith’s “Accounting for Growth” to hand as you go through the accounts. Kaupthing and Exista will provide great case studies for future accounting students.)
“>Kaupthing was a well run private bank group ”
Really?
http://www.guardian.co.uk/business/2009/aug/04/iceland-bank-kaupthing-internet-leak
After discussing Iceland over on the Telegraph, IIRC, I was accused of being a “hired pen” or similar.
And don’t think I didn’t notice that it’s only the new posters who are eloquent, Fisy. True, but very hurtful ;) .
>It found its way there because UK government
>realize how badly they will look so must muddy
>waters and throw dirt as much as can.
>
>it is just so obvious from the tone of older
>posters and some very eloquent new posters —
>here on just IceNews alone.
Sorry, but what is “just so obvious”? Are you inferring that eloquent posters are in some way sponsored by the UK government?
Bond. Jim Bond.
>Kaupthing was a well run private bank group
Really? Anyway, AFAIK that is immaterial so we don’t have to go into it.
The stated reason for transferring the deposits from KSF to ING is that it was unlikely to be able to continue to meet its obligations. Nothing about evil talons there.
Jim of UK wrote :
>There’s a big difference between stupid behaviour (eg Fred Goodwin and Dick
>Fuld) and criminal behaviour (eg Bernie Madoff and Icelandic bankers)…
That is exactly what the UK propoganda team wants out here in main stream media.
How Kaupthing has an evil criminial enterprise and so of course they had to take Kauthping Singer and Friedlander to protect depositor and good people from their evil tallons.
It is a fiction. Kaupthing was a well run private bank group run by investment bankers, profitible to the end and lending its monies mostly t UK based business men.
It is actually unfair to compare Kaupthing to Northern Rock or RBS. RBS were run so incredibly badly that still UK tax payer must make up hundred of millions of GBP this year into gurgling drain of its balance sheet.
And that is after the billions last year.
It is no coincidence that after facts of both sides were presented to UK High Court Justice in Julythis year that a few days after this Kaupthing Loan sheet did ” suddenly ” find it way ” to wikileaks.
It found its way there because UK government realize how badly they will look so must muddy waters and throw dirt as much as can.
it is just so obvious from the tone of older posters and some very eloquent new posters — here on just IceNews alone.
Bjarni said:
“The Icelandic banks were no better and no worse than their foreign counterparts.”
Bjrni, I have lots of surplus psychotropics should you need them. Also extra-strength zoloft, etc.
Afram Island!
Gummi (finally back on his meds)
“The Icelandic bankers certainly held no special exclusivity on this kind of stupid behavior.”
There’s a big difference between stupid behaviour (eg Fred Goodwin and Dick Fuld) and criminal behaviour (eg Bernie Madoff and Icelandic bankers)…
Bjarni,
“The reason EVERY bank in Iceland failed, was that they were all guaranteed by the same small country.”
This vulnerability of the icelandic system was already well known before the kreppa and there had been plenty of warnings . Again I am referring to Buiter’s analysis from APRIL 2008.
http://www.voxeu.org/index.php?q=node/2498
I would like to repeat that Buiter pointed out that the icelandic economic model was unsustainable because of the following factors:
-a very small freely floating currency
-a banking sector that had completely outgrown the abilities of the icelandic economy
-a central bank unable to act as ‘a lender of last resort’
These things were well known to icelandic authorities.
Now, honestly it was very difficult, probably impossible to change this since the situation as it had come into being by 2007 was probably impossible to reverse but fact of the matter was that the fundamental choices made by banks and the financial authorities have been wrong and disastrous.
I would also like to repeat that the dutch financial authorities, when Iceasave started off in NL, had demanded from Landsbanki to create a fund large enough to guarantee 20.000 euro per Icesave account (if Landsbanki had done so it would have saved Iceland a lot of problems) and that Landsbanki failed to do so.
Simply saying that “Iceland was too small to make guarantees” is not enough: this has just been a breach of trust.
As regarding Fortis, I was only going into some detail because this is the only bank in the row you mentioned that I know a little about since the whole Fortis issue was extensively reported on in the dutch press.
Now I do agree with you that many banks all around the (western) world made big mistakes and that the whole system was bound to suffer but I would really like that , in stead of fingerpointing, you would go into the specific points brought forward against the icelandic banks in the postings of Mike, Peter and myself.
And off course there were many mature bankers who scr*wed up too but this does not change the fact that ALL Icelandic banks apparently had VERY inexperienced managers who had no idea what they were doing. These are different matters.
To Niels:
>>>>Yes, the banks you mentioned made mistakes and had to be bailed out or failed, but one main difference: in Iceland EVERY bank failed and in other countries there were just a few with problems.
The reason EVERY bank in Iceland failed, was that they were all guaranteed by the same small country.
The world’s banking system came very close to a full system crash, during September/October, but this was averted through a massive bailout program worldwide. During those crazy days last year, only one thing mattered. Who is the lender-of-last-resort, and can they deliver big enough bailout? Iceland simply could not.
>>>>Furthermore I think Mike is clearly demonstrating too, from his own extensive experience, how bad the situation of the icelandic banks was.
I actually agree with many of the points Mike raised, especially how vulnerable the Icelandic banks were to systemic risks. They were taking way too many risks and had definitely grown too large compared to the underlying Icelandic economy.
>>>>Finally I would like to go into some detail regarding one bank you mentioned, Fortis, comparing it to the icelandic banks.
Fortis made one big mistake: it acquired dutch ABN/AMRO at a very high price and when the kreppa started they were unable to find the money necessary for paying this enormous debt after which, indeed, they were bailed out and split up.
Fortis, was actually the bank I was wondering a little bit about if it really should be included in the list. From what I understand it was not as much engaging in the high-risk behavior that brought down some of the other banks mentioned.
>>>>And I am talking about the entire icelandic banking system, not just one bank.
I actually listed 9 banks, not just one :-). To make a real comparison, compare the (too young) Icelandic bank managers to Richard Fuld, Jimmy Cayne, and Andy Hornby, which helped run their respective banks to the ground. Compare the Icelandic bank losses to Citygroup, Merrill Lynch, and UBS, that each had to write down about $50B after massive losses in sub-prime mortgages.
The point I am trying to get across, is that there are no innocents here. The whole banking industry has been (and in many ways still is), excessive, high-risk, over-leveraged, irresponsible, out-of-touch, and often just plain too greedy for their own good. The Icelandic bankers certainly held no special exclusivity on this kind of stupid behavior.
Bjarni,
I do not think I was reacting too harsh to your ‘provocative’ statement :-)
I just do not agree with you that the icelandic banks were not too different from many foreign banks and that the only difference was the fact that icelandic authorities were unable to bail them out.
Yes, the banks you mentioned made mistakes and had to be bailed out or failed, but one main difference: in Iceland EVERY bank failed and in other countries there were just a few with problems.
Furthermore I think Mike is clearly demonstrating too, from his own extensive experience, how bad the situation of the icelandic banks was.
And like it or not, I think Peter has a point too: it was typical for icelandic banks to have very young managers in charge . I remember reading a paper in which an analyst was amazed to notice that the entire board of Glitnir and Landsbanki consisted of people in their 30-ies while that of Kaupthing was in their 40-ies.
Now I am not against young blood in the top of an organization but with hindsight one might say that it was not a good idea to put cocky young cowboys in charge of financial institutions.
In foreign banks things are very different, I can say.
Finally I would like to go into some detail regarding one bank you mentioned, Fortis, comparing it to the icelandic banks.
Fortis made one big mistake: it acquired dutch ABN/AMRO at a very high price and when the kreppa started they were unable to find the money necessary for paying this enormous debt after which , indeed , they were bailed out and split up.
Now compare this with the ENTIRE icelandic banking sector.
On the one side we have a bank which was basically healthy but made one big mistake.
On the other side we have banks with:
-incompetent management, refusing to listen to warnings from international experts
-shady payments and financial transfers
-no trust at all from the international community
-scams like Icesave
-open lies in dealing with foreign parties (see my description of Icesave above)
-money transfers to the Caymans when the inevitable end came.
(and I am not even mentioning the role of the financial authorities and politicians in Iceland)
And I am talking about the entire icelandic banking system, not just one bank.
Bjarni, I am not being harsh, I think that this is just not the same.
Bjarni said:
“The Icelandic banks were no better and no worse than their foreign counterparts. The only real difference in the end, was their scale compared to their underlying lender-of-last-resort.”
Again, I suggest you actually read what Mike said.
The Icelandic banks were in a league of their own in the ranks of banking stupidity and possible criminality. That was only what was know from the facts admitted at the time, subsequent facts such as the illegal share price ramping between each other and the dubious lending practices only emphasise the fact.
To Peter – London:
>>>>you will see that Icelandic banks as way way worse that any other country…they did not understand the risks, refused to heed warnings and regulated by a clueless …
Really? Which of the foreign banks I mentioned in the above list, actually understood the risks they were taking and heeded the warnings? Which one of them could have survived without a bailout or takeover?
The Icelandic banks were no better and no worse than their foreign counterparts. The only real difference in the end, was their scale compared to their underlying lender-of-last-resort.
Bjarni
“These banks were not really all that different in behavior from the Icelandic banks at the time, ”
If you look the links Mike provided you will see that Icelandic banks as way way worse that any other country.
The Barclay’s article for example, gives they clear impression of incompetently run banks managed by young men who did not understand the risks, refused to heed warnings and regulated by a clueless FME.
Iceland and its banks were in a class of their own, with debt to GDP ratio double the next worst gamblers such as the UK and *many* times that of countries like Japan.
To Mike (UK Nordic analyst):
>>>>Some say that the Icelandic banks were merely an example of what was happening elsewhere.
Welcome back!
To Niels:
>>>>I think the icelandic banks should not be presented as ‘normal’ financial institutions that could be compared to banks from other developed countries.
I used the term “normal” on purpose, although I kind of knew it would probably attract a harsh response :-).
Up until about 2007, a lot of banks around the world were engaging in enormous high-risk banking activities, and making a lot of money in the process. Here is a short list of the worst offenders:
Northern Rock
RBS
HBOS
UBS
Fortis
Bear Stearns
Merrill Lynch
Leahman Brothers
Washington Mutual
and the list goes on…
All of the banks on this list had to be bailed out by their respective governments and/or taken over by larger banks. These banks were not really all that different in behavior from the Icelandic banks at the time, although most of their problems were tad different (the subprime loans, etc.).
The main difference, was that the size of the Icelandic banks in comparison with the size of the Icelandic economy, precluded them from being “saved”.
So, if you look at how even crazy high-risk banks could be considered “normal” during the bubble, the Icelandic banks were right there with them.
Probably repeating what I’ve said previously – but relevant to the above comments:
We operated in Iceland from 2000 onwards. deCode Genetics (Kari Stefansson and Hannes Smarason – ah! what a team!) invited us to invest – we said “No thanks” but we were impressed by the financial ignorance displayed by the company (capital structure all wrong, no income stream, pathetic business plan).
Anyway skip forward five years. Summer 2005. My team wrote an analytical report on the three Icelandic banks. They were on a classic course to failure. It wasn’t too late. By early 2006 we could see that there was no way out for the three banks – they were churning debt, ever larger amounts of it, and using various accounting loopholes, and poor disclosure, to hide what was happening. This led to the run on the ISK in spring 2006. In March of that year the banks tried to fight back. The London meeting (organised by the Icelandic Chamber of Commerce) was a PR disaster for Iceland. Every analyst went back to their organisations are decided to (i) fleece these jokers, and (ii) plan an exit strategy. The three banks announced their plans to take deposits outside Iceland. What a totally inappropriate move that was – they were given various warnings at the time. Geir Haarde was present – he heard first hand that any attempt to fill the holes in the banks’ balance sheets using deposits taken outside Iceland would fail. For one thing, he was told, if any financial stress occurred then the relevant national authorities would move to protect any movement of assets (especially deposits). That included a warning about stopping financial flows.
(Lots of technical stuff about the mismatching of assets and liabilities omitted here.)
In summary:
The three banks were very sick in 2005.
The three banks were terminally ill in 2006.
The three banks were dead but still standing upright in 2007.
The three banks fell over in 2008.
The actions of the UK, Dutch, German and Nordic financial authorities had nothing to do with the failure of the three banks. That was assured before they even moved. All those authorities at some point or another warned their Icelandic counterparts about what was likely to happen. The FME never listened – it was useless.
I find it rich that people like Geir Haarde can spout such nonsense that Darling/Brown caused the downfall of the Icelandic financial system. He is in effect blaming them for his own poor memory. Unfortunately for him the documents exist to show exactly what was said in March 2006. Try this Barclays Capital note of the meeting held in Rvik:
www3.hi.is/~ajonsson/kennsla2006/Barclays%20Capital%20-%2011%20April%202006.pdf
Read pages 6,7, 8 and 9 (especially 9 which is entitled: “International subsidiaries do NOT help in distress”). Here is an extended quote from the end of that:
“It has been made abundantly clear from our conversations
with the Icelandic banks, if we didn’t already know, that they have almost no ability to
bleed liquidity from their foreign regulated subsidiaries, even if they wanted or needed
to. Kaupthing’s plans to seek deposit funding at subsidiary FIH in Denmark, and Glitnir’s
ownership of BN Bank in Norway do not diversify the parent bank’s own (solo) funding
sources. They make the consolidated liquidity ratios look better (deposits/loans) but
they are no real comfort to us as credit analysts. Equally, disclosing consolidated
cash/liquid asset positions is meaningless since the parent bank creditors have no call
on subsidiary assets. This fact seems to have been lost in recent commentary, and also
seems to be conveniently ignored by bank management. We have asked the three
banks for detailed parent bank (solo) unconsolidated accounts.”
The three banks NEVER provided unconsolidated accounts.
That note was publicly available to every Icelander – they could read what was happening. In this wonderful active democracy where every voice is heard, and every person is so well educated and so well read (rather than the representative democracy you see elsewhere where the dumb ill-educated people let the elected ones get on with it) the people chose to do nothing – and silence is consent.
Some say that the Icelandic banks were merely an example of what was happening elsewhere. Go and look at slides 4, 5 and 6 of this to understand how untrue that statement is, and how totally off-the-scale Iceland was:
http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=7337
Back to work!
Bjarni,
I think the icelandic banks should not be presented as ‘normal’ financial institutions that could be compared to banks from other developed countries. They were not, not in their size related to the total size of the icelandic economy and not in the sense that they were functioning in a normal manner.
Paul Buiter presented a paper to the Icelandic authorities back in april 2008 in which he correctly analyzed that the icelandic financial system was unsustainable and would fail.
http://www.voxeu.org/index.php?q=node/2498
As you are saying yourself Landsbanki was facing problems at the interbank market (which is the usual market for banks for obtaining the liquidity that is necessary for their operations).
Why were they facing problems? Simply because other banks started to lose confidence in them.
So setting up Icesave was just a necessity for Landsbanki to postpone the inevitable.
I would also like to add to this (a repitition of what I posted before) that dutch financial authorities (DNB) had very big doubts about the trustworthiness of Landsbanki when Icesave started operating on the dutch market in early 2008.
However, EU/EFTA regulations made it impossible to reject a banking license for Icesave and the financial authority decided not to warn the dutch public in order to avoid a bank-run.
With hindsight one might say that this was the wrong decision and DNB is now facing a lot of criticism about that.
In stead, DNB decided on a cautious approach, making the following secret agreements with Landsbanki about Icesave:
-Icesave would only attract a limited number of dutch depositors
-Landsbanki would set up a fund of liquidity in order to be able to finance the 20.000 euro of compensation money for depositors in case of a bankruptcy.
As we all know the icelandic side did not care at all about this agreement and did not meet its obligations, while DNB failed to exert proper control, believing incorrectly that Landsbanki’s wizzards could be trusted on their words.
Moreover I would like to mention that in the chaotic days of october 2008, just hours before the failure of the icelandic banks all kinds of bizarre financial transactions took place, with millions being booked to shady accounts in locations like the Cayman Islands, benefitting some of the outbound vikings and shady types like Dzinghis.
I do not consider this ‘normally operating banks ‘ and I am looking forward too to the findings of Mrs. Joly..
To Jim:
>>>>The Icelandic banks were operating as large fraudulent Ponzi schemes. Wait for the results of Eva Joly’s investigations to see how different in nature (not just scale) the operations were.
Yes, we are all waiting to see what comes out of the investigations. It has already been published/leaked that many of the loans, especially the ones to “related” parties were either fraudulent or very close to it.
The special prosecutor on the other hand, seems to be concentrating on business deals, that were not “real”, but rather only intended to keep the stock prices up.
What we do not have any real facts on yet, is the number and size of the “fraudulent” loans compared to the regular “lawful” ones. It is both premature and oversimplification to just assume that all the Icelandic banks simply must have been operating as “Ponzi schemes”. We will just have to wait for the published reports, to see what they really found out.
“the Icelandic banking “wizards” were basically doing more or less the same things as their foreign counterparts, just on a considerably bigger scale compared to the underlying economy”
No, the difference wasn’t relative scale of operations. The nature of the operations were very different. The Icelandic banks were operating as large fraudulent Ponzi schemes. Wait for the results of Eva Joly’s investigations to see how different in nature (not just scale) the operations were.
“Either rating agencies have shown a good deal of incompetence or they were being fooled by ‘creative accounting practices ‘ from Landsbanki”
They were fooled by fraud, particularly fraudulent asset valuations, permitted by weak regulators. It’s that simple.
“Would you in this case still accept without any protest that Alistair Darling by himself signed an MoU, promising UK would pay 600M Euros (not GBP), without any review by the rest of the government or acceptance by parliament?”
We can protest about anything but, as repeated several times, the UK government doesn’t need to get parliamentary approval for taking out debt obligations. Our government, like virtually every other government in the world, is empowered to make precisely those kinds of decisions.
To Niels:
>>>>My opinion on Icesave is a different one though.
I think it was a big scam, introduced by Landsbanki because it was becoming more and more difficult for them to borrow money the ordinary way (thru the interbank market).
IceSave was in many ways, a perfectly normal saving account, except for two factors: It was completely online, and it was run by a bank from a different country. That in and by itself does not make it a scam. It was perfectly legal to offer accounts like this, according to EU regulations at the time.
Almost all banks get their funding from mainly two sources, borrowings from other banks and investors, and then deposits. Most banks have some kind of mix of these two funding options.
As I mentioned before, most financial experts thought, at the time in 2006, that switching to deposits was a very good move for Landsbanki, considering the difficulties that were happening in the interbank market. No one really foresaw, that they would then be able to sign up over 10000 new customers every month, for two and half years straight, with total of approx. 10B Euros in deposits.
The leverage for the Icelandic banks were about the same as other similar banks at the time. During the bubble, while they had full access to funding, they were profitable and looked perfectly well run on the outside. They passed for example all the stress tests by FME with flying colors. Ratings agencies were simply not looking at potential liquitidy problems in banks, at the time, and therefore missed the whole thing.
What very few realized at the time, was that due to the small size of the underlying Icelandic economy and the inexperience and ignorance of the regulators/authorities in Iceland, they were actually sitting ducks if massive liquitidy or confidence problems hit the market. Which is exactly what happened in September/October last year.
It only became public knowledge after the crash, that there were a lot of problems on the asset side of Landsbanki and the other Icelandic banks. Whether these asset problems were actually larger in scale, than other risk-taking banks, remains to be seen. Lot of assets around the world, have had to be downgraded significantly in value for the past year.
The main difference is that many other banks in USA and Europe were bailed out by their respective countries, while the Icelandic banks were cut off from any assistance. Iceland was simply too small compared to the size of the Icelandic banks, to do any bailouts. They did try, for example by lending 500M Euros to Kaupthing on October 7th. That was the day before UK closed down KSF, and handed its depositors over to the ING, which then resulted in the immediate collapse of Kaupthing hf., and all its subsidiaries around the world.
Glitnir was probably always a “goner” (they needed to arrange 1.5B Euros in wholesale funding within the next 2 years). But Landsbanki and Kaupthing could at least possibly have survived, if they had been given access to a lender-of-last-resort, or been sold to larger bank. We will simply never know.
Bjarni,
You are right, I was mixing up the fact that so many icelanders seem to have loans in foreign currency.
My opinion on Icesave is a different one though.
I think it was a big scam, introduced by Landsbanki because it was becoming more and more difficult for them to borrow money the ordinary way (thru the interbank market).
Financial experts and institutions apparently already started to lose confidence in the icelandic banks back in 2006.
Landsbanki needed money in order to keep going.After all, because of their agressive strategy of growth they were completely overleveraged.
Icesave was used for generating this money.
Perhaps Landsbanki has managed to postpone its failure by about a year thx to Icesave.
It remains a mistery to me how it was indeed possible that Icesave/Landsbanki had good ratings nearly untill the start of the kreppa.
Either rating agencies have shown a good deal of incompetence or they were being fooled by ‘creative accounting practices ‘ from Landsbanki.
To Niels:
>>>>Bjarni, all these decisions (loans in foreign currency) , as well as the creation of Icesave, were done by the icelandic financial wizzards (in this case from Landsbanki), without interference form parliament AFAIK.
I think you are mixing up here, the decisions by the Icelandic banking “wizards”, vs. decisions made by the Icelandic government after the crash, which is what we were discussing.
The loans made by the old Icelandic banks, as we have found out in the aftermath, were definitely not all proper. Those loans are now part of the bankruptcy proceedings, and only indirectly affect the foreign loans required by the Icelandic government.
The IceSave was in the beginning 2006-2007 thought to be a good way of diversifying the funding profile of the banks and was fully supported by rating agencies. It was only later in 2007-2008, after they had grown into billions of Euros/Pounds, that serious doubts started to be raised by various governments, rating agencies, other banks, etc. It is very easy to be critical with the benefit of the perfect hindsight.
>>>>The whole mess has been an icelandic creation.
Bitter as this might be to the average icelander: the icelandic situation is an icelandic creation and it is the “financial wizzards” you have to blame for this, not Browne/Darling or the UK/ NL goberments.
This is major simplification, that may sound good, but is not based on the reality. Icelandic bankers, government, regulators, vikings, all bear a lot of blame for what happened, but they are certainly not alone. In many ways, the Icelandic banking “wizards” were basically doing more or less the same things as their foreign counterparts, just on a considerably bigger scale compared to the underlying economy.
Everyone involved, whether Icelandic and foreign, has to bear their own share of the blame for the many mistakes they did. And, in the end everyone in the countries involved will have to bear the concequences of those mistakes, one way or another.
>>>>I find it curious that in your posts I do not see much anger towards ‘the wizzards’.
I typically try to not deal with things in anger, simply because most of the time I find it to be counterproductive. Instead I prefer to spend my time researching the exact facts (often relatively easy, but still skipped by many, especially the angry ones :-)), and then look for realistic solutions based on those facts.
To Jim:
>>>>The funds were raised on the markets as gilts (government bonds). Such bonds are offered, bought and sold all the time.
>>>>Government bonds of that magnitude typically require international funding.
The bonds are then in GBP and if UK gets into difficulties with it, it can just issue more of them (it apparently seems quiet easy to do :-)). The system works so long as investors believe that those bonds will be paid sometime in the future and GBP holds value.
Now, lets assume that something really bad happened financially in the UK, and investors loose the faith and the GBP looses half its value. Everyone therefore demands payments now in Euros instead.
Would you in this case still accept without any protest that Alistair Darling by himself signed an MoU, promising UK would pay 600M Euros (not GBP), without any review by the rest of the government or acceptance by parliament? Even if you know UK didn’t have enough foreign reserves left to pay this and faced almost certain sovereign default?
@Bjarni:
Wasn’t everything done within your own HM Treasury, not involving another country, and in your own currency?
Bjarni, all these decisions (loans in foreign currency) , as well as the creation of Icesave, were done by the icelandic financial wizzards (in this case from Landsbanki), without interference form parliament AFAIK.
The whole mess has been an icelandic creation.
Bitter as this might be to the average icelander: the icelandic situation is an icelandic creation and it is the “financial wizzards” you have to blame for this, not Browne/Darling or the UK/ NL goberments.
I find it curious that in your posts I do not see much anger towards ‘the wizzards’.
>>Darling effectively did precisely what you
>>suggest (when he bailed out the banks and put
>>every UK citizen in much greater debt) without
>>any parliamentary approval.
>
>So, if your parliament and the people had been
>completely against this move, there is nothing
>they could have done to stop it?
No. The public were typically informed after the event. The obligation had already been entered into. That’s the way it works in virtually every country, except apparently Iceland after the collapse…
>>A subsequent UK government could later renege on
>>the debt obligation (as all sovereign states are
>>entitled to do), but we would expect serious
>>consequences from the lenders.
>
>In this particular case you described, who were
>those lenders and was there an actual loan
>agreement signed with specific terms?
The funds were raised on the markets as gilts (government bonds). Such bonds are offered, bought and sold all the time. No need for a separate specific loan agreement.
>Wasn’t everything done within your own HM
>Treasury, not involving another country, and in
>your own currency?
Unlikely. Government bonds of that magnitude typically require international funding.
>Could the Queen have stopped Alistair Darling,
>if she felt the need?
Perhaps she could have declared him guilty of treason and imprisoned him in the Tower of London! But why would she. As the elected representative, he was merely executing his responsibilities.
Why would peoples’ opinions matter? They’ve already given their “vote” to their representatives. Or maybe you believe that a nation of 60m (or even 300k) should be ruled by “If you think that we should bail out the banks press green, if not then red”?
To Jim:
>>>>Darling effectively did precisely what you suggest (when he bailed out the banks and put every UK citizen in much greater debt) without any parliamentary approval.
So, if your parliament and the people had been completely against this move, there is nothing they could have done to stop it?
>>>>A subsequent UK government could later renege on the debt obligation (as all sovereign states are entitled to do), but we would expect serious consequences from the lenders.
In this particular case you described, who were those lenders and was there an actual loan agreement signed with specific terms?
Wasn’t everything done within your own HM Treasury, not involving another country, and in your own currency?
>>>>There’s no need for a constitution when we have a Queen who rules by divine right… ;-)
Could the Queen have stopped Alistair Darling, if she felt the need?
“By your criteria, the UK people agree to the Lisbon Treaty because their elected Government vote to accept it, in the UK parliament.”
Thats exactly the situation.
“So you are saying if Alistair Darling, without any prior authorization, went off the deep end under pressure and signed an MoU, obligating UK to pay 600B Euros (10000 Euros per person), the people of UK WOULD HAVE TO PAY IT, no matter what? ”
Correct. That’s what having an elected Government is about. In fact the situation is the same with a business, any authorised officer of the company can make obligations (purchases etc) on behalf of the business without getting a shareholders vote or board approval. If the board or shareholders disapproved it would not make the debt invalid – much the same with Iceland’s Icesave debt.
“So you are saying if Alistair Darling, without any prior authorization, went off the deep end under pressure and signed an MoU, obligating UK to pay 600B Euros (10000 Euros per person), the people of UK WOULD HAVE TO PAY IT, no matter what? And you personally would be perfectly fine with this, even if it means bankrupting your country?”
Darling effectively did precisely what you suggest (when he bailed out the banks and put every UK citizen in much greater debt) without any parliamentary approval. Darling’s prior authorisation is being an elected representative in government. A subsequent UK government could later renege on the debt obligation (as all sovereign states are entitled to do), but we would expect serious consequences from the lenders. We’d probably be struck down with great vengeance and furious anger…
“Maybe you do need a constitution…”
There’s no need for a constitution when we have a Queen who rules by divine right… ;-)
Bromley86 said:
>I missed the bit where the UK citizens agreed to the neo- liberal plan to increase the UK debt to a conservatively estimated GBP2 tn.
“They agreed by electing members of parliament to make decisions for them. It’s how a parliamentary democracy works.”
==============================
What a foolish and silly retort. You are in the land of cuckoos.
By your criteria, the UK people agree to the Lisbon Treaty because their elected Government vote to accept it, in the UK parliament.
Do you actually have any concrete data about people’s opinions in the UK about their level of agreement for Government policy to extend the national debt to such humongous proportions, in order to bail out the banks etc.
To Jim:
>>>>It could be worth getting up to speed. No other country can ignore state obligations in this way.
So you are saying if Alistair Darling, without any prior authorization, went off the deep end under pressure and signed an MoU, obligating UK to pay 600B Euros (10000 Euros per person), the people of UK WOULD HAVE TO PAY IT, no matter what? And you personally would be perfectly fine with this, even if it means bankrupting your country? Maybe you do need a constitution…
“Maybe in civil laws, but between sovereign states like Iceland and Netherlands, in fact there is a difference. The MoU has no enforcability in Iceland, since it was never authorized or supported by Althingi.”
You miss my point…
“I must admit I am not very familiar with corresponding laws and constitutions of other countries”
It could be worth getting up to speed. No other country can ignore state obligations in this way. Think of the situation from the perspective of any other national except an Icelander and it seems like a crooked constitution. Perhaps the UK’s constitution (if we had one…) should be updated to say that, if the British government rescues a bank, it cannot rescue the accounts of any Icelandic citizens unless a parliamentary majority votes in favour. That would be a clear and unambiguous constitution, so that means it must be correct.
To Niels:
>>>>The whole turn of events in Iceland, where parliament introduced all kinds of amendments to a deal negotiated by the icelandic gob is rather unusual.
I agree it was rather unusual, but Althingi took this step, since it was not allowed to see the agreement until well after it was signed. The amendments regarding the guarantee then became the only option left to it, short of refusing the whole agreement.
It is important to distinguish between the actual terms of the loan agreement, which is controlled by the government, versus terms of the guarantee which falls under Althingi.
>>>>It is also naive to believe that the other side will just accept all of this.
Well, then UK and Netherlands should just decline the amendments and terminate the agreement. They are perfectly within their rights to do so.
Very good answer Jim.
Actually, AFAIK this is the way it works: the goberment decides on financial policies and these decisions can only be overturned by a majority in parliament.
The whole turn of events in Iceland, where parliament introduced all kinds of amendments to a deal negotiated by the icelandic gob is rather unusual. It is also naive to believe that the other side will just accept all of this.
To Jim:
>>>>Bjarni – You present a very Icelandic view…
Well, … :-)
>>>>As I’ve mentioned before, there is no difference in law between a MoU and an Agreement.
Maybe in civil laws, but between sovereign states like Iceland and Netherlands, in fact there is a difference. The MoU has no enforcability in Iceland, since it was never authorized or supported by Althingi.
>>>>Actually, every other state allows its government to take on state-guaranteed obligations without seeking parliamentary ratification.
I must admit I am not very familiar with corresponding laws and constitutions of other countries. The Icelandic constitution is very clear on this subject.
Normally, this issue never becomes a problem, since the government typically has clear majority to take on the obligations it decides. But, on this particular IceSave agreement they simply do not have the majority.
It would be interesting to learn if the UK or the Dutch governments would, in fact, be allowed to sign agreements obligating their countries to actually PAY OUT 100′s billions of Euros (UK: 600B, Netherlands: 165B) for no economic benefit, without having first clear authorization or majority of their respective parliaments for that agreement. Would you really have accepted this as done deal without any protest?
>>>>If Althingi isn’t willing to guarantee the loan, then it shouldn’t have allowed the banks to take deposits.
I think its safe to say, that almost no one in Iceland thought, what ended up happening, was even remotedly possible. Before the crash in October, there was a common decision by central banks not to assist ICB with foreign currency, which severly limited its options of dealing with the crisis after the Lehman Brothers fall.
So without the benefit of that foresight, Althingi had no reason to even be thinking of banning any banks to take deposits. And, I seriously doubt would have been even legal or correct for them to do so. You may think, with the benefit of hindsight, that this was all perfecty forseeable, but at the time with the information they got, it was in fact not.
Bjarni – You present a very Icelandic view…
“What was signed in 2008, was actually a Memorandum of Understanding (MoU), not a full-blown Loan Agreement between two sovereign countries.”
As I’ve mentioned before, there is no difference in law between a MoU and an Agreement. An MoU is merely an agreement that usually has the words MoU on the top. Whether the document is binding or not depends on its contents, not its heading. Some MoUs are legally binding and some are not. It is therefore clearer to refer to non-binding agreements and binding agreements.
“As been discussed here before, only the Icelandic parliament, Althingi, is authorized to accept loan agreements or guarantees on behalf of the country.”
Indeed.
“And if you think about it, you will realize that this is the way it should be. Otherwise, any member of the government would be able to sign international agreements, that would obligate the country, without prior authorization.”
Actually, every other state allows its government to take on state-guaranteed obligations without seeking parliamentary ratification. Otherwise, finance would dry up. For example, it occurs every time:
- a government issues gilts (government bonds);
- a regulated financial organisation accepts a consumer deposit (because the state provides a minimum deposit guarantee);
- etc.
For some reason, Icelanders distinguish between the state guarantee provided to depositors in its financial institutions and the state guarantee provided to a loan. And that is the heart of the problem; there should be no distinction. If Althingi isn’t willing to guarantee the loan, then it shouldn’t have allowed the banks to take deposits. Otherwise, Iceland looks corrupt by giving the impression of artificially distinguishing between types of guarantee in order to justify obtaining money under guarantee A and then not returning it under guarantee B.
To Niels:
>>>>Perhaps it is interesting to know that already at the signing of the dutch loan to Iceland, back in 2008, dutch experts made it clear that they expect Iceland will never be able to repay in full.
What was signed in 2008, was actually a Memorandum of Understanding (MoU), not a full-blown Loan Agreement between two sovereign countries. As been discussed here before, only the Icelandic parliament, Althingi, is authorized to accept loan agreements or guarantees on behalf of the country.
And if you think about it, you will realize that this is the way it should be. Otherwise, any member of the government would be able to sign international agreements, that would obligate the country, without prior authorization.
>>>>The present goberment can prove that it did its best to protect dutch interests and leave the rest of the unpleasant Icesave file to the new goberment.
The problem is, that those hard-ball tactics may actually result in UK/Netherlands getting less payments for IceSave, not more. If the current negotiations fail (which now seems likely), there is a good possibility that the Icelandic government will fall.
This would lead to political chaos in Iceland and possibly a new election has to be held. Any new government would almost certainly have to include either the Independence party or the Progressive party. Both these parties are on the record, that they would demand a full renegotiation of the IceSave agreement, to fix the many mistakes that were done in the original agreement.
UK/Netherlands need to realize that the current government, which is now hanging on by a thread because of IceSave, is the most “friendly” government they could possibly wish for. If they cannot make the agreement with this one, they will certainly not have more success with the next one.
Bjarni,
Perhaps it is interesting to know that already at the signing of the dutch loan to Iceland, back in 2008, dutch experts made it clear that they expect Iceland will never be able to repay in full.
I remember reading this in at least one big newspaper.
In other words, this would mean that the dutch and UK goberment will have repaid their own citizens (the dutch depositors to a max of 100.000 euro), using their own tax payers money.
In my opinion the dutch goberment is playing hardball at the moment for 2 reasons:
-they want to try and force Iceland to repay as much as possible
-next year there will be elections and the present goberment (thoroughly unpopular) will be voted out. The present goberment can prove that it did its best to protect dutch interests and leave the rest of the unpleasant Icesave file to the new goberment.
Jim :-)
>I missed the bit where the UK citizens agreed to the neo- liberal plan to increase the UK debt to a conservatively estimated GBP2 tn.
They agreed by electing members of parliament to make decisions for them. It’s how a parliamentary democracy works.
Adam wrote
“Now, if Iceland does not like the Icesave deal (what an ironical name, as it is the only way presently seen to save Iceland) and thinks it has a legal argument, that’s fine – but then Iceland needs to find some way to begin to repay some or all the other debts which the 3 banks failed over… for example, unilaterally offering to pay back charities and public authorities in the UK and elsewhere which are outside the Icesave deal. The only thing which can save Iceland from ‘can’t pay won’t pay’ redlining is to voluntarily agree to pay something which it can afford.”
———————————————————
What you write does not apply. Obviously the Iceland State agrees in principle about the obligations re depositers guarantee and wants to negotiate realistic repayment terms.
“It is an awful lot of money, it is true.”
—————————-
There is very limited capacity from the State to repay. Trade surplus is what generates the foreign currency cake, there is only so much of that cake to go around to repay foreign debts
“But UK (and perhaps Dutch and certainly American) taxpayers have (unhappily!) agreed to an awful lot of money to be repaid too – the UK estimates range from nearly £300 billion – about 1/2 per head of the cost of Icesave up to £2 trillion or 3 times as much per person”
————————————————————-
I missed the bit where the UK citizens agreed to the neo- liberal plan to increase the UK debt to a conservatively estimated GBP2 tn.
“And before the kreppa, Icelanders had a higher per capita income…”
————————————————-
and a higher per capita debt, now doubled after the Kreppa.
“but if the UK or the US defaults, the entire world economy goes down the plughole.”
———————————————————
Imo that is neo – liberal economic theoretical hogwash. Investors take risks and outrageous gambles and can accept or have to accept that they got it wrong without the State baling out their losses. Deposits to a certain limit in a Bank are a sacred cow.
Thanks Adam. A good read.
@Terry. Don’t worry, I’ve not gone native on the guarantee business :) . I was referring of course to the Darling-Mathiesen conversation which, as I understand it, says that Iceland is not going to categorically state that they are honouring the EEA guarantee, but that (for what it is worth) they will try.
@Bjarni.
>Not sure what you mean by this. Are you saying some governmental figure in Iceland informed UK we would be paying the deposit guarantees immediately? If so, they were badly misinformed.
Sorry, I meant that the Darling-Mathiesen conversation happened on the same day (7th Oct), not that someone in Iceland said “The cheque is in the mail”.
@Jim. Very good :) .
To Jim:
>>>>But what if the debtor is actually a lemon?…
Good one :-)
To Niels:
>>>>Indeed, Landbanki seems to have failed already (7 oct 2008) before the seizure of icelandic assets by Browne Darling (8 oct 2008). So the whole Icesave affair cannot be blamed on Browne/Darling.
There is nothing about IceSave that can be blamed on only one country or few specific persons. Almost everyone involved here messed up royally. As I mentioned in a previuos post, the time to solve the problem was between 2. and 6. of October. By the 7th, the time had probably run out.
This could only have been avoided if everyone had worked together towards solving the problem. As this clearly did not happen, due to various mistakes, miscommunications, and miscalculations, everyone must take their share of the blame for the outcome (where everyone lost).
>>>>I can fully agree with your calculations but fact of the matter is that the UK/dutch side does know about the small size of the icelandic economy, however they do not care.
Well, WE DO CARE, which is the reason Althingi is not accepting the IceSave guarantee agreement without the amendments. Sometimes, if you become too greedy, you end up getting less or nothing. If Iceland either goes “cold turkey” or suffers sovereign default, it will be very difficult for UK/Netherlands to get paid anywhere close to the full amount.
>When working in a Credit Union, we often find that those who really can’t pay nonetheless insist on trying – we have one woman who we lent money beyond our ordinary rules, who lost her job in April, but has been trying until now to pay without telling us how hard it was. For her, I am happy to ‘freeze’ any interest and allow the principal to be paid ever so slowly. For others, who could pay but will not, I am happy to put an order on their house to prevent sale, and then to insist on every penny of interest, costs, and fees on top of what is borrowed.
Adam, Iceland needs you :-)
“A creditor does not care very much about the overall situation of his debtor: he will regard the debtor as an orange”
But what if the debtor is actually a lemon?…
>The British had been informed that the guarantee would be honoured if possible on the same day.
I missed that Bromley. Where was that? – Wiki states:
http://en.wikipedia.org/wiki/Icesave_dispute
The first Icelandic reaction to the British moves was positive: the Prime Minister Geir Haarde issued a statement saying “The Icelandic government appreciates that the British authorities are willing to step in and respond to the immediate concerns of depositors of Landsbankinn Icesave accounts”.
Again, I would restate that the comments of Haarde, Mathiesenand Oddsson made at the time, would still persuade me that the UK response was appropriate.
No, Jim, what is true for people may not be true for governments. ‘Protection’ of domestic currency and economy is a well known reason for economic decisions and enshrined in the IMF Treaty… but of course you are right to question the relevant motives.
For example, discriminatory rules may be used to prevent domestic (if not foreign!) currency transactions, often thought of as capital controls. The intended effect is also to ‘ringfence’ convertible assets tho of course the burden is borne by the domestic population, and not foreigners.
And individuals do not count for much by themselves in international law (whether this is ethically right may be questioned) – to avoid sovereign default in governmental obligations, the State can do an awful lot. Your point that in this example the State was actually reducing its ability to honour its international obligations would of course be important, but in general terms the impact on individuals gives rise to no direct rights, even if the action amounts to an ‘expropriation’, but only to rights which may be taken up by the governments of affected individuals. The mere fact that an action may be perverse, stupid, ill-advised, etc. doesn’t mean that the government can’t take it.
Indeed, if the Icelandic government wished to compensate all the foreigners with (soon to be worthless) ISK, it would pose some difficulty for the claimants. (I have this vision of a horde of Dutch and British people coming to Reykajavik, or perhaps the Westfjords, to be given a suitcase full of paper money, and being told to go out and buy whatever they can find…)
However, none of such jollity would really help Iceland or its people. The fact is that Iceland is facing winter without the cushion it was able to achieve, briefly, last year with these kinds of measures. There is no confidence in Iceland’s willingness to make good on any new debts, which can only be established by accepting (a considerable proportion, at least) of old obligations. The economic reality is that – without the ‘puffed profits’ gained by the banking industry – Iceland has almost nothing other people might want (which sort of protects it – who wants to foreclose on your houses and land when only the tough and the crazy (or perhaps visionary?) want to live there). Indeed, every decision so far has only reinforced a view that Iceland is not trustworthy, however much it may need credit; soon it will be too late, and all that will be available will be charity. For the few in Iceland who truly are tough, the enforced self-sufficiency may be better than having to be ‘debt slaves’ – for the many, it will simply be a different form of ‘debt slavery’, without any relief possible. For the prudent, it will mean ruin – their savings will buy nothing Iceland cannot produce, even where an import may be far cheaper.
Now, if Iceland does not like the Icesave deal (what an ironical name, as it is the only way presently seen to save Iceland) and thinks it has a legal argument, that’s fine – but then Iceland needs to find some way to begin to repay some or all the other debts which the 3 banks failed over… for example, unilaterally offering to pay back charities and public authorities in the UK and elsewhere which are outside the Icesave deal. The only thing which can save Iceland from ‘can’t pay won’t pay’ redlining is to voluntarily agree to pay something which it can afford.
When working in a Credit Union, we often find that those who really can’t pay nonetheless insist on trying – we have one woman who we lent money beyond our ordinary rules, who lost her job in April, but has been trying until now to pay without telling us how hard it was. For her, I am happy to ‘freeze’ any interest and allow the principal to be paid ever so slowly. For others, who could pay but will not, I am happy to put an order on their house to prevent sale, and then to insist on every penny of interest, costs, and fees on top of what is borrowed.
Yes, countries are different than people! Which is why I find it – sadly amusing – to see the hopes of the Icelandic people move from the IMF to the Russians to the Faroes (to whom I would now happily loan money, tho they should not be so foolish as to loan it to Iceland!) to the EU and then to ‘Uncle’ Norway in the search for new credit; better to simply default, and beg. But better still to simply agree to whatever is demanded, and to try to pay it on schedule – if it proves impossible, it will be impossible, that is all. Unwilling is worse.
Bjarni seems to think the issue is whether the IMF and Nordic countries ‘deliver as agreed’ – but really, why should they? My point was however that Iceland can’t rely on the need to avoid sovereign default to justify discriminatory regulations if it then fails to use that breathing space to reach agreements offered to it precisely for that purpose. He also seems to think that ‘final cost’ of the agreement (which is precisely unknown) being (in his view) 2/3 interest payments somehow makes it unfair, ignoring entirely that interest is the cost of delayed payment; Iceland has accepted it owes an unknown sum now of up to Euro 4B and hopes to see recovery during a long period of up to 3B; the cost of delaying payment for that recovery period will be Euro 2B. So, you don’t like to pay that ‘extra’ Euro 2B – well, pay the Euro 4B now, and see what you get back. Can’t do that? Well, take the deal, and try to pay back faster.
It is an awful lot of money, it is true. But UK (and perhaps Dutch and certainly American) taxpayers have (unhappily!) agreed to an awful lot of money to be repaid too – the UK estimates range from nearly £300 billion – about 1/2 per head of the cost of Icesave up to £2 trillion or 3 times as much per person. And before the kreppa, Icelanders had a higher per capita income… but if the UK or the US defaults, the entire world economy goes down the plughole. We don’t have the luxury of pretending we can be economically self-sufficient.
We could say, hey, Iceland, help us out. (In fact, we are saying that – if you do your bit, that will help, a bit.) If your government defaults, that will affect every country’s creditworthiness. But if you won’t agree, well, we won’t let your people starve, I hope.
Terrorist legislation? Propaganda? No, I don’t think so – Iceland and Madoff have hurt worse than anything AL Qaeda could do!
Bromley said:
Landsbanki had been shut down (I use that term because there was/is a lot of confusion as to what actually had been done) on the 7th. The British had been informed that the guarantee would be honoured if possible on the same day. So surely Landsbanki was screwed before the UK did anything?
Indeed, Landbanki seems to have failed already (7 oct 2008) before the seizure of icelandic assets by Browne Darling (8 oct 2008).
So the whole Icesave affair cannot be blamed on Browne/Darling.
Off course their action did complicate matters very much for Iceland since it strongly reduced the icelandic ability to deal with the situation.
Bjarni, you have made it clear that under the current conditions the Icesave “deal” as it was concluded earlier would lead to icelandic bakruptcy. I can fully agree with your calculations but fact of the matter is that the UK/dutch side does know about the small size of the icelandic economy, however they do not care.
A creditor does not care very much about the overall situation of his debtor: he will regard the debtor as an orange and try to squeeze as much out of it as possible.
To Jim:
>>>>in the same way that the avoidance of personal bankruptcy could be considered an over-riding reason to embezzle funds. It is a reason, but not necessarily a lawful one.
International laws that cover sovereign states are not the same as civil/criminal laws. The main overriding responsibility of governments is always to protect its citizens. In case of an emergency (natural, financial, wars, etc.), the state is allowed to take actions, that normally would not be considered legal. Where to place the limits of such actions is of course always up for debate.
“the avoidance of sovereign default probably could be considered an over-riding reason to apply such discriminatory treatment”
…in the same way that the avoidance of personal bankruptcy could be considered an over-riding reason to embezzle funds. It is a reason, but not necessarily a lawful one.
Also, your reason is incorrect. The effect of the discimination was to ringfence assets for Icelanders, not to reduce the likelihood of defaulting on state liabilities. If some of those assets had been used to compensate foreign depositors instead (eg fair distribution of assets irrespective of nationality), then the risk of national default would have reduced. But the government decided that transferring assets from state control to Icelanders was worth increasing the default risk. Of course, there is no free lunch…
To Adam:
>>>>What is interesting in the context of this debate is that failure to agree to the Icesave deal may well lead to sovereign default – and thus deprive the Icelandic government of such a legal argument.
What could very well lead to sovereign default, is not the failure to agree to the IceSave deal itself, but rather whether the IMF/Nordic countries deliver their loans as agreed. Iceland does not believe the two should be connected, but in reality they are. I do not think this situation, which developed later, affects the legal argument whether the likely sovereign default justified the emergency laws.
>>>>I don’t think that the Icesave deal is meant to push Iceland into default, but rather the exact opposite
I agree, that I don’t think that this is the intention, but as the original IceSave agreement was written, it would almost certainly lead to sovereign default.
This outcome, as we have discussed here before, is because how large share the payments would be compared to the Icelandic foreign trade. Most people in UK/Netherlands don’t consider this as an issue, as they simply do not realize how small the Icelandic economy really is.
>>>The interest rate may seem high – but you are talking about long term rates here, not the short-term rates we see today.
In and by itself, 5.55% interest does not sound very high. And, as Bromley86 has been posting, most other loans to Iceland have similar interest rates. The real problem, is that this interest is computed on the whole 4B Euros, while we wait for the Landsbanki bankruptcy to be wound up, which will take years. This means the interest will be about 2B Euros compared to 1B Euros in guarantee payments (assuming 75% recovery rate).
As you may know, bankruptcy proceedings do not priority to interest payments, so the whole interest cost will land on Iceland, without any economic benefit to recover it from.
>>>>I think any hopes for other money to be loaned to Iceland are in vain, unless the Icesave ‘amendments’ are abandoned.
There is NO CHANCE for the amendments to be abandoned, as they have now been passed as law by the Icelandic parliament. If something comes out of the current discussions, which requires change to any of the amendments, this would mean the whole matter will have to go back to the parliament. At the moment, the government does not have enough votes to make any significant changes to the amendments.
To Niels:
>>>>And off course I do realize that dealing with these debts is very difficult for Iceland.
Paying the 1B Euros (assuming 75% recovery rate) should possibly be manageable over 15 years, so long as the Icelandic economy recovers. It is the extra 2B Euros in interest, that added during those 15 years that is going to be the big problem.
To Bromley86:
>>>>The British had been informed that the guarantee would be honoured if possible on the same day.
Not sure what you mean by this. Are you saying some governmental figure in Iceland informed UK we would be paying the deposit guarantees immediately? If so, they were badly misinformed.
I think both governments must have realized very early on that Iceland would never be able to pay the guarantees. This WAS in fact the underlying cause for the whole crash in Iceland, as everybody “knew” that since the banks were bigger than Iceland, it therefore would never be able pay the guarantee by itself.
>>>>The time for action was before Landsbanki shut it’s doors. Glitnir was bad, but not a problem for the UK market if it could be reassured that Icesave & KE were sound.
Completely agree, the period to “rescue” Landsbanki from immediate default was in the days before the crash, specifically Oct 2-6, when both governments already realized things were going south fast. It looks like during that time, the two governments hardly talked together at all. The 200M GBP takeover proposal, for example, was handled solely through Landsbanki people, and this possibly caused the big miscommunication.
>>>>Unfortunately that didn’t happen, but that had nothing to do with draconian measures.
The “draconian” description applies more to the freezing action itself and the KSF takeover, both of which happened after the IceSave failure and ended up causing a lot of damage that could have been avoided.
With due respect to Prof. Mathijsen, who has written and reasoned well about the effect of non-discrimination rules, it is also fair to say that the avoidance of sovereign default probably could be considered an over-riding reason to apply such discriminatory treatment. What is interesting in the context of this debate is that failure to agree to the Icesave deal may well lead to sovereign default – and thus deprive the Icelandic government of such a legal argument.
I don’t think that the Icesave deal is meant to push Iceland into default, but rather the exact opposite – otherwise they would insist on an immediate start to repayments. The interest rate may seem high – but you are talking about long term rates here, not the short-term rates we see today. 5.5% may well turn out to be a bargain, over 15+ years. (I haven’t looked at the current long term rates for highly rated corporate bonds, but Iceland is not such a good risk!)
I think any hopes for other money to be loaned to Iceland are in vain, unless the Icesave ‘amendments’ are abandoned. And the more it is seen that Iceland is being difficult, the higher the rates will be.
Landsbanki had been shut down (I use that term because there was/is a lot of confusion as to what actually had been done) on the 7th. The British had been informed that the guarantee would be honoured if possible on the same day. So surely Landsbanki was screwed before the UK did anything?
Once Icesave went under, especially without a firm statement backing the guarantee, nothing could save KE in the UK. You & I know that Iceland wasn’t responsible for the guarantee for KE, but a lot of people didn’t. Even those that did owed no loyalty to KE and, rather than risk having to wait 3 months to get their money back, would simply move it to a UK owned bank.
The time for action was before Landsbanki shut it’s doors. Glitnir was bad, but not a problem for the UK market if it could be reassured that Icesave & KE were sound. Unfortunately that didn’t happen, but that had nothing to do with draconian measures.
Bjarni,
I was meaning that 20.000 was paid by Iceland after receiving the infamous loan and 80.000 by the dutch/UK goberment.
So it is right to say that this money comes from dutch/british tax payers but as we all know Iceland , somehow, is supposed to pay this back.
And off course I do realize that dealing with these debts is very difficult for Iceland.
Like I said, my sympathy is not with big depositors who acted out of greed.
To Jim:
>>>>Peter and Bjarni – Perhaps this will contribute to your discussion…
Just like Terry, I do like your “ability to lob grenades with such brevity!” :-)
My first reaction after reading his brief, is that Mathijsen clearly knows his European laws very well, and I am certainly not going to try to debate the legal points he raises. We will have to wait until this is litigated in front of court to find out if he is correct.
I have always had some reservations about the legality about several aspects of the emergency laws. The main argument for Iceland, is whether the threat of immediate banking collapse, made this kind of a force-majeure event, which then allowed Iceland to take such extreme measures. Mathjisen touches on this a little bit, basically he does not believe so.
I do think there is one small mistake in his brief:
“Similar amendments were made to Article 10 of the Act on Deposit Guarantee and Compensation Scheme No. 98/1999, establishing that claims made by the IDGF are also priority claims according to Article 112 of the Insolvency Act No. 21/1991.”
As far as I know, this priority was already included in the original 98/1999 laws, NOT amended later. I do not know if this would have any legal impact on the interpretation of the priority claim.
Please note, that there are actually many different legal, financial, and political issues at play here:
a) Whether IDGF should have priority according to article 112 of the insolvency laws.
b) Whether FSCS and DNB will should have the same priority.
c) Whether IDFG should have “super” priority over all other claimants (main topic of Mathjisen’s brief)
d) Whether it was legal according to the Icelandic constitution and EU laws to change the priority of all depositors, with the emergency laws
e) Whether the deposit guarantee funds take over the original depositor claim or if it becomes a new separate claim.
f) Whether IDGF should be paid from Landsbanki the first 20K, before FSCS and DNB get paid for amounts above 20K.
g) Whether IDGF should pay FSCS and DNB back the difference, if it receives higher share of the Landsbanki payments, according to Icelandic laws.
As with all other legal disputes, this will in the end have to be negotiated or litigated in front of a court, in order for us to get the final answer to all these questions.
To Niels,
>>>>The group that is sueing Iceland had deposited more than 100.000 euro per person.
No question there will be a lot of lawsuits. That is to be expected after financial losses of this magnitude. It remains to be seen what the outcome of those lawsuits will be.
But, if anyone thinks there is a large pot of money waiting somewhere to be found for the UK/Netherlands governments, UK Councils, Dutch 100K+ depositors, IoM and Guernsey depositors, unsecured creditors, and anyone else, they are unfortunately sadly mistaken.
Iceland does not have any real foreign currency reserves left, will be highly dependent of foreign loans for years, and will have to be very lucky if it somehow manages to pay those loans back. As Mike Smith commented earlier, “you can’t get blood out of a stone”.
If the lawsuit on the validity of the priority changes by the emergency laws succeeds, it will simply mean that a) Iceland will go bankrupt, b) UK/Netherlands governments will get much less paid back for their deposit guarantee payments, and c) the other unsecured creditors will get about 30% towards their claims instead of nothing.
>>>>As 100.000 was the amount being covered by Iceland after receiving the Icesave loan and the dutch/UK goberments (using tax payers money) ,they want the rest of their savings being compensated as well.
The amount 100.000 Euros was the amount covered by Netherlands, not Iceland. I am not sure what the loan you mentioned here really is. The only “loan” is the one from UK/Dutch governments that was used to cover the their respective deposit guarantee payouts.
To Andy,
>>>>Except the so-called “draconian actions” happened AFTER the collapse of Icesave.
If it wasn’t maybe fully clear from my earlier comment, what I meant was: if the governments of UK and Iceland had worked together to find a solution, rescuing the deposits of IceSave and KSF IOM would have been at least possible.
The key thing, during a bank run, is to step in immediately and calm the depositors down so they will stop withdrawing their money. Instead the UK government decided to take the unilateral (draconian) actions they took, which resulted in everyone having to be paid out, at total cost of about 10B Euros in direct outlays, and 10′s of billions more in losses for unsecured creditors.
>>>>What Iceland will do is find a way to weasel out of paying the Icesave debt by any means necessary, even if it means under-reporting GDP growth for decades.
According the IceSave agreement law passed, the GDP growth numbers will be based on reports published by EuroStat, so I am not exactly sure where you are getting this errorneus information from.
>>>>In the meantime a way will be found to give domestic debt relief to Icelanders, thereby taking the Icesave guarantee money directly out of the pockets of British and Dutch taxpayers and putting it into the bank accounts of the Icelandic population.
This makes absolutely no sense, as the money from British and Dutch taxpayers was already used to pay the depositors. You seem to be just making things up…
>>>>And I’m sure the Icelanders will still have the arrogance to put themselves at the top of every list in the world except the scumbag thief list.
and it goes downhill from there!
>Peter and Bjarni – Perhaps this will contribute to your discussion…
Jim, I do like how you lob grenades with such brevity!
Funny thing. Because of that link Jim I had a look at Island.is again and saw this MoF report on the various rates Iceland is facing:
http://www.island.is/media/eydublod/04-Lantokur-islands-i-kjolfar-bankahrunsins-2009.PDF
Grunnvextir = Basic rate
Álag ofan á grunnvexti = Premium above that
So, as at 24th July 2009, MoF summarised the rates as:
*IMF (Alþjóðagjaldeyrissjóðnum)*
Basic: Weighted average of short notes (i.e. the usual IMF SDR rate, whatever that is)
Premium: 2.75%
*Nordics (Norðurlöndunum)*
Basic: Some confusion as to whether Libor or Euribor.
Premium: 2.75%
*Icesave UK/NL*
Basic: ~4.29%
Premium: 1.25%
(Odd, but it adds up to about the 5.55% that we know about)
So, it looks like the IMF loan carries a far higher interest rate than we had previously thought (the assumption was ~2%). From Wiki, the base IMF rate is 3.49% (0.25% monthly annualised). Plus the 2.75% gives a whopping 6.24%!!! (I think that warranted three exclamations)
Which is what I suggested the average rate for the Nordic loans would end up being.
For completeness, the Faroe Islands loan seems to be at 5.25%.
Someone tell me that I’m wrong.
IN ICELANDIC MENTALITY OF BEING “PURE AND PERFECT VIKINGS THAT KNOW EVERYTHING, ARE BETTER THAN EVERYONE ELSE AND LIVE IN THE GREATEST COUNTRY OF THE WORLD” THERE IS NO PLACE FOR BEING WRONG AND MAKING MISTAKES. SO YES, THE USUAL ICELANDIC APPROACH IS TO BLAME SOMEONE ELSE… NO MATTER HOW HARD YOU TRY TO SHOW THEM THEY ARE WRONG, THEY WON´T ADMIT IT, NOT EVEN IF THEY KNOW THEY ARE WRONG. IT IS A CULTURAL THING. MAKING MISTAKES IS JUST SO MUCH OPPOSED TO WHAT THEY THINK THEY ARE. IT IS SIMPLY NOT COMPATIBLE WITH THEIR IDENTITY MODEL “THE PERFECT BRAVE VIKING, ABLE OF EVERYTHING AND WINNING ALL THE BATTLES”…
ICELANDIC CULTURAL IDENTITY LETS NO SPACE FOR MODESTY. ICELANDERS FEELING OF WHAT THEY ARE IS CLOSER TO THE IDEA OF “GODS” THAN IT IS TO WHAT IT MEANS BEING A HUMAN BEING. NO WONDER THE WAY THEY USE TO BEHAVE WITH FOREIGNERS HERE, LOOKING AT THEM AS IF THEY WERE FROM ANOTHER PLANET.
REAL BRAVENESS IS NOT ABOUT BEING A STRONG VIKING WITH A HARMER SMASHING HEADS, IT IS RATHER ABOUT MAKING MISTAKES AND BE BRAVE ENOUGH TO RECOGNIZE IT AND DO WHAT IT NEEDS TO BE DONE, REPAIR WHAT NEEDS TO BE REPAIRED, AND BE BETTER THAN WHAT ONE WAS BEFORE. BUT AS I SAID, FOR ICELANDERS THERE IS NO PLACE FOR IT, THERE IS NOT A CHANCE THEY WILL RECOGNIZE THEY HAVE TREMENDOUS WEAKNESS IN MANY THINGS… THEY ARE TOO VIKING FOR BEING HUMAN
Correction, typed a bit slower ;)
We can top that too, if it doesn’t exist we will be the first to create it.
“And I’m sure the Icelanders will still have the arrogance to put themselves at the top of every list in the world except the scumbag thief list.”
We can top that too, if it doesnt excsist we will the first to create it.
Jim,
thx for this interesting link. It seems that after the general Icesave trouble one new demon is going to haunt Iceland.
At the moment a group of wealthy dutch depositors is sueing Iceland , for the discriminatory treatment of foreign depositors.
Exactly the fact that Icesave was intendend for non-icelanders (residents of the UK and the Netherlands) seems to become a discrimination issue since the deposits of foreigners were left in Old Landsbanki while those of icelanders were moved to new Landbanki.
Prof . Mathijssen is arguing that this is a violation of european regulations.
The group that is sueing Iceland had deposited more than 100.000 euro per person. As 100.000 was the amount being covered by Iceland after receiving the Icesave loan and the dutch/UK goberments (using tax payers money) ,they want the rest of their savings being compensated as well.
I do not really feel sympathy for these people but legally they seem to have a point.
And this is not all:the german elections have been done and the new german goberment might want to investigate the enormous losses of the german Landesbanken in Iceland as well (this is an issue MUCH bigger than Icesave).
I wonder how Iceland will deal with this: at least these are issues which cannot be blamed on “crazy actions of Brown/Darling.”
Peter and Bjarni – Perhaps this will contribute to your discussion…
http://www.island.is/media/eydublod/Forgangsr-LegalOpinion_-_SuperPriority_-_PM.pdf
Bjarni wrote:
“Rescuing IceSave and KSFIoM deposits failed (failed=bank collapse), largely because of the unilateral draconian actions of the UK government.”
Except the so-called “draconian actions” happened AFTER the collapse of Icesave.
“When IceSave failed, the UK government was then forced to step in and refund the deposits by itself in full to avoid collapse in their own banking system. That money is probably mostly lost, as Iceland will never be able to fully pay it back, irrespective of how the current negotiations unfold.”
What Iceland will do is find a way to weasel out of paying the Icesave debt by any means necessary, even if it means under-reporting GDP growth for decades. In the meantime a way will be found to give domestic debt relief to Icelanders, thereby taking the Icesave guarantee money directly out of the pockets of British and Dutch taxpayers and putting it into the bank accounts of the Icelandic population.
And I’m sure the Icelanders will still have the arrogance to put themselves at the top of every list in the world except the scumbag thief list.
On Oct 2, 2009, Bjarni said:
“One of the key purpose of guaranteeing deposits, is to help avoid bank runs and make sure depositors KEEP THEIR MONEY IN THE BANK.”
But they didn’t, did they? The depositors were wiped out. Annihilated. The Icelandic government did save them.
Unless they were Icelandic depositors, apparently these are special.
“Rescuing IceSave and KSFIoM deposits failed (failed=bank collapse), largely because of the unilateral draconian actions of the UK government.”
The inability of any of the banks to raise urgent funds, the worlds most over leverage country (10xGDP) and the total lack of confidence in Iceland to support its banks were nothing to do with it, of course.
Iceland was a basket case in a banking crash, manage by banking morons. Blame everyone else if you like, you still get to suffer the consequences of moving away from real industry.
To Peter – London:
>>>>Ielandic government stole from the non-Icelandic depositors to protect Icelanders.
Peter, you are making progress, there are actually 4 correct words in your sentence :-)
The correct sentence would be:
“ICELANDIC GOVERNMENT passed the emergency laws to PROTECT ICELANDERS by rescuing the Icelandic banks and the economy from immediate collapse.”
Please note, that had the Icelandic economy collapsed, this would have meant automatic sovereign default and NO ONE, whether Icelandic or foreigner, would then have been paid anything.
>>>>I don’t know what Bjarni is trying to say, but Icelandic depositors did not lose their life savings.
One of the key purpose of guaranteeing deposits, is to help avoid bank runs and make sure depositors KEEP THEIR MONEY IN THE BANK.
Anyone that knows about Fractional Reserve banking (anyony one that doesn’t, should Google it and read up about it), will realize that there is NEVER enough cash to pay all the depositors.
While the Icelandic emergency laws were successful in resucing deposits for domestic depositors, large part of the Icelandic population lost almost everything else instead: jobs, houses, other savings, etc.
Financially speaking, I think we would be glad to trade places now with almost any other western European country. Even if you have your deposits, its not nice to make a living in a country that is basically bankrupt.
>>>>Icesave and KSFIoM depositors indeed lost everything with the UK stepping in and refunding Icesavers funds after Iceland refused to honour its guarantee. KSFIoM are still waiting for a refund from the IoM government.
Rescuing IceSave and KSFIoM deposits failed (failed=bank collapse), largely because of the unilateral draconian actions of the UK government.
When IceSave failed, the UK government was then forced to step in and refund the deposits by itself in full to avoid collapse in their own banking system. That money is probably mostly lost, as Iceland will never be able to fully pay it back, irrespective of how the current negotiations unfold.
Isle of Man, which is much smaller, does not have the same means as the UK, and therefore cannot guarantee their depositor savings in full.
steveservaes said:
“Bjarni mate – is my understanding above more or less right then? That the Icelandic government basically authorised the banks to prioritise Icelanders (ie retail depositors in hf) over the debts hf owed to eg KSFIOM? If so – that was a pretty low thing to do”
Yes you are correct.
The Icelandic government stole from the non-Icelandic depositors to protect Icelanders.
I don’t know what Bjarni is trying to say, but Icelandic depositors did not lose their life savings. Icesave and KSFIoM depositors indeed lost everything with the UK stepping in and refunding Icesavers funds after Iceland refused to honour its guarantee. KSFIoM are still waiting for a refund from the IoM government.
.. yeah .. or changing the law affecting them once a bankruptcy situation arises, as iceland did with the emergency laws
To steveervaes:
>>>>I would expect the least G. Brown could do to make amends to the IOM savers is try and get this treatment redressed…
The best that could happen for the IOM savers, is that the 550M GBP frozen in KSF UK, would be returned to KSF IOM. Unfortunately, there is probably very little that Gordon Brown can do about the KSF UK bankruptcy proceedings (even if he wanted to), just as there is very little he can do about affecting the bankruptcy proceedings of Kaupthing hf.
And that is actually the way it is supposed to be. It would be a really bad idea if prime ministers could start meddling with bankruptcy proceedings.
On page 36 they give a list of assets and liabilities after pledged positions and remaining priority claims have been subtracted. This gives total assets of 775B ISK (4.3B Euros) and total senior liabilities of 2748B ISK (15.2B Euros).
Old Kaupthing hf. just released today new updated creditors report which can be found at:
http://www.kaupthing.com/lisalib/getfile.aspx?itemid=20427
According to the balance sheet on page 30, the total assets are 1705B ISK (9.4B Euros), while total senior liabilities are 3679B ISK (20.3B Euros). As most of the priority deposits have been already paid out, the senior liabilities left are mainly the borrowings (3237B ISK, 17.9B Euros).
The whole report is very detailed with 57 pages, so it will take a bit more time to read it over in order to comment more.
To steveervaes:
>>>>My understanding of matters is that while there are bankruptcy laws in Iceland, these were changed at the time of the collapses so that the retail depositors of Kaupthing hf (ie Icelanders) got paid 100% out of the Kaupthing hf pot
Here you are at least partially correct. The bankruptcy laws themselves in Iceland were NOT changed, but on October 6th the Althingi passed what has been called the emergency laws which placed all depositors of the Icelandic banks ahead in priority of other creditors.
This priority was NOT only for “Icelandic” customers, but all depositors of the banks. For example, all the UK/Dutch IceSave depositors were given the same priority by the emergency laws.
Needless to say, the other unsecured creditors, both Icelandic and foreign, are extremely unhappy with this change. Most pension funds in Iceland, for example, got hurt very badly by these laws and will loose large share of their funds.
It is pretty clear that the validity of those emergency laws will be litigated at some point and no one knows yet what the final outcome will be of this. If the emergency laws will be invalidated, there will be a lot of losers, including all three governments of Iceland, UK, and Netherlands that fund the deposit guarantees.
It is also a misunderstanding that Icelanders got PAID 100% out of the Kaupthing hf. pot. During the first week of October last year, the whole banking system in Iceland was in immediate danger of collapsing. Credit lines where being canceled, the Central Bank was running out its foreign currency, and bank branches in Iceland where fast running out of cash.
The emergency laws where then successfully passed and used to stop the immediate crisis, by promising 100% guarantee of deposits, but at the same time placing severe limits how much cash people were allowed to withdraw. Later, strict restrictions on foreign exchange currency trade was instituted, that still apply today.
All the new banks, including the central bank, had to be refinanced again by the government, which is now running massive deficits as a result. No foreign money was used for this purpose, and no cash was paid out to depositors.
The new banks will also issue a bond to the bankruptcy proceedings of the old banks, covering the difference of the estimated recovered assets versus liabilities they took over.
The reality of the situation is, that Iceland was cut off financially from the rest of the world during the crisis, and was forced to take the emergency measures by itself to keep the economy floating.
Today, Iceland has almost no foreign currency reserves left, massive debts and deficits, and is also being pressured to take on even more debt, to pay for IceSave and other creditors. Due to its limited ability to increase foreign export revenues, it will have very little chance of paying those debts, and sovereign default within few years is unfortunately very likely.
Bjarni mate – is my understanding above more or less right then? That the Icelandic government basically authorised the banks to prioritise Icelanders (ie retail depositors in hf) over the debts hf owed to eg KSFIOM? If so – that was a pretty low thing to do. No wonder people aren’t jumping through hoops to help out – and I would expect the least G. Brown could do to make amends to the IOM savers is try and get this treatment redressed, so that any extra return made by the Icelandic retails depositors is made at the expense of Icelandic taxpayers, rather than out of monies owed by hf to eg KSFIOM savers pursuant to the contractual parental guarantee.
On a related note Steve, I think you’ll have a chuckle at this post where Bjarni kindly translated a phrase for me:
http://www.icenews.is/index.php/2009/09/24/david-oddsson-becomes-newspaper-editor/comment-page-1/#comment-94576
>> If Iceland concedes point 1, then UK/NL could
>> concede points 2 and 3. Is it going to happen?
>> Place your bets!
>
> Very unlikely. If UK/NL actually did also demand
> points 2 and 3, it was a major miscalculation
> and will almost certainly lessen the chance of
> positive resolution by Althingi.
But that how’s negotiation works. Behind closed doors, UK/NL could suggest 1 in return for withdrawing 2 and 3. There will never be a resolution as long as the negotiations are public. This process has disaster written all over it.
To Bjarni
My understanding of matters is that while there are bankruptcy laws in Iceland, these were changed at the time of the collapses so that the retail depositors of Kaupthing hf (ie Icelanders) got paid 100% out of the Kaupthing hf pot (rather than by the government – as in the UK or IOM)with the consequence that the Kaupthing hf pot now only holds enough to pay about 20p in the £1 to unsecured creditors including those in the IOM who were induced to deposit on the faith of a guarantee from hf. If the Icelandic government had not changed the law the pot would hold a lot more since the Icelandic retail depositors would not have taken 100% each out of it.
borrowing from the imf is the same as borrowing from the mob. you might get better deal from the chinese.
>There are well established laws in Iceland to deal with bankruptcies and no one gets paid ahead of anyone else.
Again without supporting Steve’s argument and to clear up my out-of-context second sentence above, he’s talking about the emergency law prioritising depositors and thus reducing the pot available to non-depositors (including the parental guarantee, should established Icelandic insolvency law allow that).
To steveservaes:
More mixing up here. Kaupthing hf. is in a moratorium and is being wound up. Any contractual liabilities of Kaupthing to the KSF IoM will have be claimed through same process as all the other claims. There are well established laws in Iceland to deal with bankruptcies and no one gets paid ahead of anyone else. For more information on the winding-up process, check the following web site:
http://www.kaupthing.com
In case it wasn’t clear, I suspect that Steve is referring to the parental guarantee from K.hf to KSFIOM. That reduced the pot being paid to non-depositor creditors.
Not that I’m making a case for this being honoured.
simple answer to that is kaupthing hf had a contractual liability to the isle of man savers the value of which has been reduced by a change in icelandic law allowing hf to use what remains to repay icelanders ahead of others
To steveservaes:
You are mixing so many things up that its difficult to figure out which part to answer. I will try anyway:
There is no agreement between the UK and the Icelandic government on anything else than IceSave. Kaupthing Isle of Man was a completely separate bank than Landsbanki IceSave.
The GBP 550M that KSF IoM is missing actually got frozen in the UK parent bank KSF UK, when the UK government took it over in October. No funds where ever taken from KSF IoM and used to pay any Icelanders. Please get your facts straight.
The UK should also have demanded that Icelandic national depositors be given no greater priority in respect of the banks’ assets than unsecured creditors. The consequence of having done this is taking funds that would have been used to pay-back foreign depositors (eg in Kaupthing Isle of Man) and using them to pay Icelanders. Its OK the Iceland government compensating its nationals from state funds but not from private assets, to the cost of other innocent parties hurt by the Icelandic nation’s failure to regulate its banks.
CORRECTION
I of course meant to say:
This probably means that he could NOT agree with the demands of Johanna to accept the UK/NL points by Saturday.
Ogmundur Jonasson, the minister of health, just resigned his position. He was one of the four “rebel” Left-Greens that was behind making sure the amendments on the guarantee were added to the IceSave laws passed by Althingi.
This probably means that he could agree with the demands of Johanna to accept the UK/NL points by Saturday.
As I said earlier, this will be a very interesting week in Iceland.
To Jim:
>>>>If Iceland concedes point 1, then UK/NL could concede points 2 and 3. Is it going to happen? Place your bets!
Very unlikely. If UK/NL actually did also demand points 2 and 3, it was a major miscalculation and will almost certainly lessen the chance of positive resolution by Althingi.
Please note that we now heard from Johanna there were more points raised by UK/NL, but it has not yet been confirmed officially that these three were the actual points that were raised (they are still supposed to be a secret).
Bjarni
Bjarni – If Iceland concedes point 1, then UK/NL could concede points 2 and 3. Is it going to happen? Place your bets!
Another possibility for Johanna, is that she finally realized that the UK/Dutch are not going to accept the amendments, no matter what she says or does. She may therefore simply be trying to get some finality on the issue, by forcing the government MP’s to make up their minds on the raised points by Saturday.
It turns out that there are more points that UK/Netherlands have raised regarding the amendments. Here are the three points that I have heard about so far:
1. The 2024 cut-off we had already heard about
2. The payment limit of 4%/2% of the increase in GDP
3. The bankruptcy proceedings of Landsbanki should be according to Icelandic laws.
If these points are all correct, we will almost certainly get nowhere fast.
Johanna gave an interview today, where she gave her government MP´s until Saturday to decide whether there is enough majority to put this front of Althingi. This is likely a pressure tactic on the Left-Greens, to get them to budge on the amendments, otherwise the government may not hold. She used similar tactics to get the EU application through the parliament this summer.
It looks like this week will certainly be very interesting!
Adam said:
>The fact is that if Iceland wants continued access to the global financial
>markets and to be able to borrow foreign currency, it can’t start from a
>position that it will determine how much and for how long it will repay
>this particular obligation.
The EU member states seem confused that they are the whole world. They are not. They also seem to think that they can make this obligation on any terms they like.
I am not for the time limit but I can see that what UK and Netherlands government really want * is * for sovereign default of Iceland in coming years.
Why else would they have 5.5% interest? They are creating this self fulfilling propecy by charging this interest.
They know full well that it is * this * repayment interest level that will cause the financial problems for Icelandic state in coming years leading to default.
Luckily our parliament is not so naive ( read idiotic and out of depth ) as is current government to not see that.
>Arguably it is already far too late for Iceland to avoid being seen as the
>Madoff of western countries, if not quite the Zimbabwe of Europe.
Our image is very entangled with how actions of Brown and Darling and they propoganda machine including this Jim ” arc of insolvency ” Murphy.
Over time as we do our usual way of paying our debts thorugh liquidation of the Landsbanki and other bank asset ( and with a more compentent government in than now ) and after High Court case in UK over Kaupthing Singer and Friedlander the reality will be untangled from that caused by Brown and Darling.
And our reputation will be recovered over time.
But Brown and Darling and failed New Labour will not because by then the world will see just how reckless his policies where as UK becomes unable to sell its Gilts ( government bonds ).
>When very very few people are willing to lend money to you?
This is a big world.
Even right now Japanese are quite happy to lend to our companies. As are Chinese and Russians. I am talking about individuals and companies. Governments be damned.
Now and longer term we have things for trade that people want. Of course we will be traded with, as individuals and companines. And that is what matters most.
To Bromley86:
The main problem is that the Icelandic government and their negotiators have been sending the message to UK/Netherlands that most of their “demands” are perfectly reasonable, while failing to realize that almost no one else in Iceland agreed with them.
They actually presented the original agreement last summer as a major “breakthrough”, which was then picked apart when we finally got to see what it actually contained. Throughout the summer, the government kept defending the agreement and refused to allow any discussion on changing the loan terms, leaving Alþingi with the only option of limiting the scope of the guarantee through the amendments.
If the UK/Netherlands now terminate the agreement, this opens up the possibility to completely renegotiate the terms of the loan itself and fix the many mistakes in the agreement itself.
To Adam,
>>>>So, what will your country do when the amendments are not accepted by the creditor committee? When the IMF loan is blocked, as is EU entry? When very very few people are willing to lend money
If the guarantee passed by Alþingi, is not accepted by UK/Netherlands, due to the amendments, they have the choice to terminate the IceSave Agreement itself according to articles 3.1(b) and 3.2. What happens after that, depends on lot of things, including whether the current government holds power.
>>>>I would hazard a guess that there is and will be a big gender difference; the men will want to ‘fight’ the world and vote to be independent at any cost; but the women will prevail, and capitulate for the common good, and do most of the work to pay the debts and keep open the docks and the shops. This, I was told, is the tradition of Iceland.
I think this is a big simplification. The strongest supporters of the IceSave agreement are mainly the Social Democrats (both men and women) that want to join the EU almost at any cost, and some of the Left-Greens supporters behind Steingrimur Sigfusson (male). Almost everyone else thinks the agreement needs to be renegotiated.
International finance and domestic politics can make strange bedfellows. The fact is that if Iceland wants continued access to the global financial markets and to be able to borrow foreign currency, it can’t start from a position that it will determine how much and for how long it will repay this particular obligation.
The longer Iceland takes to accept that this is a take it or leave it situation, the weaker its position. Arguably it is already far too late for Iceland to avoid being seen as the Madoff of western countries, if not quite the Zimbabwe of Europe.
Of course, any country is ‘free’ to declare a default at any time, and to refuse to pay anything to anyone. Agreeing the Icesave ‘deal’ without amendment would not change that; which is why the only real point of leverage is the price or interest rate to be charged – 5.5% seems high, but much depends on the course of inflation in Britain and the Euroland over a very long period before you can know for sure if that was a reasonable rate. Why so high? Well, there seems to be a considerable risk that this debt will not be paid; suddenly, 5.5% seems pretty low.
The Parliament is thus shooting itself in the foot by focusing on limiting the duration of the guarantee; doing so ensures the price will need to be even higher.
Yet and yet – of course no-one wants to have Icelandic debt slaves (you may be hard workers, but perhaps a bit ornery? and why not) or take your houses or countryside (yes, a lovely place you have, but really at most all I want is to visit again). I don’t think the world expects Icelandic troops to take over a sector in Afghanistan, or to see your longboat patrol the Persian Gulf.
So, what will your country do when the amendments are not accepted by the creditor committee? When the IMF loan is blocked, as is EU entry? When very very few people are willing to lend money to you? When there is no money to buy food or medicines or petrol or car parts from abroad?
According to the Guardian article yesterday, Iceland is already adjusting – foreign workers have left, everyone who was supported abroad is coming home, while anyone who can work overseas is emigrating. Will you follow Oddson, who is said to be against the Icesave agreement? Can you really afford to be self-sufficient? Even if anyone could, it would be you – but really, can you?
I would hazard a guess that there is and will be a big gender difference; the men will want to ‘fight’ the world and vote to be independent at any cost; but the women will prevail, and capitulate for the common good, and do most of the work to pay the debts and keep open the docks and the shops. This, I was told, is the tradition of Iceland.
>They are so desperate in making the deal, that they will accept almost anything and cling to any outside hope, however remote it is.
Yep, looks like they’re on the ropes to me:
http://www.bloomberg.com/apps/news?pid=20601085&sid=akW4xtSZpHa8
I doubt anyone will be willing to take someone’s word on this, but I may be wrong. Either way, being forced to ask them to likely indicates that the government fears for their survival.
On September 22, in another thread, I suggested:-
‘if Icelanders think they are really really being pushed beyond a point where honour/pride demands they dig their heels in, then dig their heels in they will even if in practice they are cutting off their noses to spite their faces. I think that point has been reached with Icesave.’
And yesterday Bjarni wrote:-
‘There is now a lot of talk in Iceland of going completely “Cold Turkey”, that is refuse both the IMF loan and IceSave, and then everybody would end up loosing.’
I hope it doesn’t come to that. GB and NL should remember you can’t get blood out of a stone.
Yes, I’ve thought for a long time that the only practical solution agreeable by all sides is an open-ended guarantee but with a lower interest rate. However, that requires renegotiation, which risks Icelandic MPs declaring no confidence in the current Icelandic government. What a mess. It’s seems unpredictable what will happen next.
To Jim:
>>>>So was her prediction extremely naive or a failed negotiation tactic?
“Extremely naive” would be the correct one…
It is becoming clear that the current government is becoming a major hindrance in resolving this issue. They are so desperate in making the deal, that they will accept almost anything and cling to any outside hope, however remote it is.
What the government do not seem to realize is that they do not have the people behind them. Large majority of the population thinks that the current IceSave agreement was really bad for Iceland and needs to be renegotiated. Since the government does not have majority in Althingi for the agreement to go through without the amendments, and the British/Dutch do not accept them, the only real option left is to start over.
In my estimation, its mainly three things that need to be changed in the agreement in order for it to pass through Althingi, in turn for guaranteed full payment after 2024:
1. Fix the priority for guarantee funds so they are back where they were supposed to be according to the Icelandic bankruptcy laws.
2. More reasonable terms for sovereignity and termination clauses, which were way too strict.
3. Different calculation method for the interest payments. Its actually strange how little discussion has been around this issue, since this is where the real problem is for Iceland. Assuming 75% recovery rate means Iceland would pay 1B Euros in guarantee and 2B in interest payments, which simply is much higher than Iceland can ever hope to cover from its foreign trade. Longer loan term only does not help, since Iceland would never be able to catch up on the interest charges.
There are several options possible here:
a) No interest on the 3B from Landsbanki
b) Interest charge only starting in 2016
c) Lower interest rate 2-3% to cover inflation only
Changing the loan agreement according to one of those options, would mean Iceland would have the hope to avoid default, while the British/Dutch would still get the full IceSave amount paid. Everyone wins! :-)
If the British/Dutch negotiators continue to demand full payment with full interest, there is an increasing chance that the Icelandic government could flounder (currently their best friends in Iceland), and the next one would be much more difficult to deal with. There is now a lot of talk in Iceland of going completely “Cold Turkey”, that is refuse both the IMF loan and IceSave, and then everybody would end up loosing.
The icesave deal written up by the UK/NL was granted state guarantee by law after amendments were made to it that were intended to prevent state default,
if this is rejected this deal is off the table,
there will be no amendments to the amendments,
what the UK/NL and IMF are waiting for is another crash in Iceland, if we play this game it will eventually come, but time is up, we made a fair offer and UK/NL did not use the opportunity,
the only reason to grant this icesave deal state guarantee is to keep peace with Europe,
but it can not cost us our lives, in any way shape or form,
we can not wait any longer, the IMF is useless as expected, the IMF loans are not coming, the Icesave deal will not go trough parliament again,
we have now spent a year watching the IMF wait for Iceland to die,
the IMF is actually largely owned by UK and USA,
i wonder why any one would trust the IMF.
Look at this, min 01:08:25
mms://http.0.muli.rs.ruv.is/video.ruv.is/4472535$1.wmv
>what about the interest rate 5.5% kind of like one of them subprime loans
Funnily enough, it’s only been this month that we’ve bothered to look at the various rates of the various loans Iceland is taking on. 5.5% is not that much above the 4.75% minimum that the Nordic loans will likely be at after the artificially low current interest rates normalise. Using the average EURIBOR over the past 10 years it’d actually be more like 6.25%.
Likewise, the Faroe loan appears to be at 5.25%.
It was to be expected. Iceland must of course pay its debts just like everybody else. Iceland needs to get over its victim mentality and realize this is not unfair and they only have themselves to blame for this mess. It’s not only the government and the bankers, the entire icelandic nation is guilty of living in luxury on borrowed money. The reason for the crash is not any anti terror laws in the UK, Kaupthing would have crashed anyway – it simply had too much debt. Everybody knew Iceland was heading for a total meltdown, Iceland was warned over and over again for several years but refused to listen. Iceland doesn’t deserve any IMF loans if they don’t take responsibility for the mess they created, they’d only do the same thing again in a year.
Easy wrote:
>I really belive that we have retarded people at the goberment
Finally you and I can agree on another thing.
Yes, a rate of 3.5% would make this far more likely to be viewed favourablely by the world.
I do wonder about this headline though, I would not say that the stance on Icesave hardening — it is fair to say that about Icelandic side — but British ( and followed by Dutch ) side has been rapacious stance right from the first day of this negotiations.
http://www.icenews.is/index.php/2009/09/02/icelandic-president-signs-icesave-deal/
>d) put some finality into the guarantee (2024) so it would not land on future generations. Very important point for most people here.
Personally I would be more comfortable with the loan remaining until it is paid off completely as I have posted about before.
But looking it from another direction this clearly shows that Brits and Holland know that this 5.5% interest is very high and that economic recovery will not come — as they make they projections based on Iceland in EU — even 15 years into future ( 2024) as member of EU.
( Of course that entry into EU is not going to happen, but it shows that Iceland as EU member state is not going to make things better for Iceland economic recovery if anything opposite. )
Easy – I also thought it odd when Iceland’s PM said she thought it would be solved by the weekend. I knew the UK and Netherlands would never agree without an assurance that the loan would be paid off and also knew that such an assurance would require a vote in parliament. So was her prediction extremely naive or a failed negotiation tactic?
Whoops predictable, what about the interest rate 5.5% kind of like one of them subprime loans the guys poor so stuff a few percentage ponts on top perhaps 1% above base ECB would stop things dragging past 2024 too much .Icelanders tell that to the brits
I really belive that we have retarded people at the goberment, las friday night The Prime minister said(se finally said something I thought she was mute) “we thought that the Icesave problem would be solved before the weekend but the situation is more difficult than I thought” now this idiot says: “It is obvious that the British and Dutch will not accept the Icelandic conditions as they stand, Skarphedinsson said.”
Are they really the only ones that thought this amended contract was going to work?
By the way whats with the captcha code??
This adds a little to the above, other than that the Dutch are apparently most vocal on the write off issue.
http://newsfrettir.com/economy-a-finance/disputes/1180-want-insurance-for-the-remainder
The British and Dutch stance is merely the same as it has always been. It has been obvious to everybody since last October (except perhaps to some Icelanders) that there must be “a clear assurance that the full balance of the loan will be paid off, even after 2024″. That’s the way that sovereign debt has worked for the past 80 years! If Iceland can’t afford a certain repayment schedule, then reschedule over a longer period – but don’t just write it off! Doh…