I understand your point of view.
But even in a war there are ‘rules of engagement’ (for instance: do not torture prisoners of war) and ‘rules of international justice (for instance: do not invade a neutral country)’.
In practice such rules are only used against the losing side and if you regard the present situation as a war than Iceland is on the losing side as well .
This is not fair off course, especially not towards ordinary icelanders who have no responsibility for the present mess, but unfortunately things work this way.
Basically Iceland will be faced with a huge burden of debts for many years to come.

You have been bringing up a lot of good points about the bizarre financial dealings that were going on even right before the start of the collapse.
Is the great investigator from Akranes already making progress?

Read “The Creature from Jekyll Island”.

Crash the western economies and save them via the UN, IMF, World bank ect… to get them to accept global government and reduced soveriegnty. They exploit fears of global warming to place crippling restrictions on western nations why not applying any of those standards to the poorer manufacturing nations. The end result does not reduce polution, it simply exports industry offshores further weakening the countries.

The international bankers work together with world leaders who are members of the elite club, run by secret societies. Wild but true.

In america bernanke is recommending medicine (MASSIVE stimulus) that has NEVER worked in the history of man and it has been tried by many countries over the last few centuries, why would it work now? So are many other western governments. This crisis is just beginning.

http://www.freedomforceinternational.com, (by g. edward griffin, author of the creature from jekyll island)(be sure to examine the unfilitered news)

http://www.campaignforliberty.com (ron paul oriented)

>>>>Bjarni – good to see you again :) .

Glad to be back :-)

I have been busy for the last few months, but at the same time been keeping an eye on the discussion here to see if there were any interesting topics popping up.

I kind of miss the fierce and challenging fact-based debate on important issues, we had on numerous occations last fall. Some of the discussion now seems to have degenerated a bit into both name calling and accusations, which doesn’t solve anything and is simply not that interesting to me.

I was quite impressed with the detailed reports from Mike Simpson for the KSFIOM depositors you provide link for. It contained a lot of straight-up factual information, that is probably very useful for the people involved.

I wish the government(s) here in Iceland and the administration/resolution committees for the banks here, would learn something from this on how to communicate better with the people. It would help clear up lot of the confusion and anger thats still out there.

Bjarni

Looks like I was wrong about the parental guarantee. MS is expecting it to be treated as an unsecured creditor.

8. h) loans to the bank owners/stockholders, secured only by by the stock itself.

Since the stock for these banks are now basically worthless, these loans were nearly 100% lost. In most countries, these kind of loans would have been considered illegal. It remains to be seen whether they are actually illegal also in Iceland.

Bjarni

>>>>When is the Icelandic government going to honour the guarantee given to Kaupthing Isle of Man depositors?

The short answer:

Never!

The long answer (in 13 points :-)):

1. First of all, the guarantee was not given by the government of Iceland, it was given by the private bank Kaupthing hf. which is now in administration and will be dissolved sometime in the future (a very complex process with lot of still unresolved issues).

2. The assets of old Kaupthing hf. were NOT used to repay individual depositors in Iceland. In fact, the depositors in Iceland were never really paid out anything. Instead, the people were convinced by the Icelandic government not to withdraw all their money (and also restricted by law from doing so) so its still all in the banks.

3. It is a quite well known fact, that banks in general do not keep their deposits in the bank, but rather use them to make loans to their customers. In fact the actual money kept by the bank is typically only a very small fraction of their outstanding liabilities (deposits, borrowings). Therefore, unless the bank is quite small compared to the underlying economy, it is NOT a real option to pay everyone their deposits. If you want to read up on history of bank failures here is a transcript of FDR famous Bank Speech, which is in many ways still quite relevant today:

http://www.fdic.gov/about/history/3-12-33transcript.html

4. During the crash in October last year, the Icelandic government was faced with unprecidented problems and no realistic or good solutions. The total liabilities of the Icelandic banks were in the tune of 35 Billion Euros in deposits (about 1/3 of the deposits were in ISK) and 50+ Billion Euros in borrowings, while the government had foreign reserves of about 2 Billion Euros and total tax revenue of about 5 Billion Euros per year (using the old exchange rate with Icelandic kronas, using the current exchange rate, its now about 3 Billion Euros). It doesn’t take a lot of effort (math) to realize the Icelandic government had no real means to take over (they foolishly tried) and cover the banks, hence the whole thing crashed in about a 2 weeks after the first bank (Glitnir) reported problems.

5. The emergency laws that were passed in the beginning of October 2008, had several aspects many of which are hotly contested still today:

a) They gave priority to depositors over other creditors (which understandably are not too happy about this).

b) They created 3 new banks that took over the Icelandic operations (in ISK) of the 3 old banks, both assets and liabilities (almost every foreigner thinks this was either illegal or unfair or both, but the Icelanders think this was necessary to keep some banking system running in Iceland).

c) They formed administrative committees that are currently overseeing disolving of the old banks (some of these committees have been doing very stupid things, including selling some assets at firesale prices).

d) They appointed international accounting firms to calculate how much the new banks would owe to the old banks, that is the fair value difference between the assets and the liabilities taken over (this is mostly done but the final reports have still not been published).

6. The whole big argument last fall about the 20K Euro deposit guarantees that Iceland would have to cover was only about 5-6 Billion Euros total. It goes without saying that Iceland as a country would never be able to pay even a fraction of these deposits, so everything depends how much of the assets is possible to recover.

7. We now know much better about how much the assets (loans to customers) are worth than we did last year and its not a pretty picture. The rough estimate is that about 2/3 of all customer loans are lost, which comes to about 50 Billion Euros for all three banks. This is an extraordinary amount for a country with a population of only 300000 people (about 165000 Euros per person, including all the retired people and the children).

8. It is not clear yet, exactly how the 50 Billion Euros was lost, but it will probably be some combination of: a) funding the Icelandic vikings, b) loans to foreign companies, c) mortgages and real-estate loans, d) consumer loans, e) loans to holding companies in tax havens, f) outright fraud, and finally g) just sheer incompetence and greed of the bankers.

9. With all those losses on loans, Iceland will be lucky if there are enough foreign currency assets available just to cover the 20K deposit guarantees, it was forced to take accept in November last year. You may have noticed that UK and Netherlands had to lend to Icelandic government all the funds to cover those guarantees, since Iceland had not any foreign currencies to cover those itself. You may also have noticed that the actual final agreements have not yet been signed with those countries, since the Iceland has no ability to cover even the interest on those loans, let alone the repayments, and they are therefore still arguing over it.

10. The Icelandic government has already taken on debt that is more than the whole GDP of Iceland, and with the massive recession that is currently gripping the country, is now already forseeing yearly deficits that are about 20-25% of its tax revenues.

11. The two main export goods of Iceland, fish products (42%) and aluminium (33%) are both suffering lower prices and less demand, hurting the ability of Iceland generating foreign currency revenues. If the world recession continues it likely that export revenues of Iceland will continue to shrink. On the side of imported goods, the news is more positive. Compared to last year, imports are now down approximately 45% so we at least for the moment have now a positive trade balance.

12. The Icelandic Central Bank is still maintaining heavy restrictions on foreign currency movements and the exchange rate. The main catalyst for the large amount of glacier bonds in ISK that are still held by foreign owners and cannot be exchanged back to Euros.

13. Most loans to Icelandic companies and people are either indexed for inflation or to linked to foreign currencies. With the contraction of the Icelandic economy, this simply means that most companies and people that have loans are either already bankrupt or going bankrupt. There is actually a relatively good chance this will eventually lead to total bankruptcy of the whole country, although everyone is of course hoping this will not happen.

From this long list of points, it should therefore be relatively easy to see that Iceland does not have any possibility to find somewhere the extra few hundred million pounds that it would take for it to be able to cover the KFIOM deposits. It really doesn’t matter who is right and who is wrong, it just has no ability to pay it, and it most probably never will.

Bjarni