Certain Icelandic billionaires (and the odd millionaire) are accused of profiting personally from Iceland’s economic downfall through unlawful or shady means. Whether guilty or innocent, they have a lot to answer for; but have been largely silent and invisible for months.
Today the tabloid DV gossips that three former Landsbanki bosses seem to be opening up an office together in a house near Reykjavik’s commercial harbour. The building in question is owned by former Landsbanki board member Thorgeir Baldursson and the three wannabe business partners are reportedly Sigurjon Arnason, Halldor J. Kristjansson and the infamous ex-West Ham owner, Bjorgolfur Gudmundsson.
Staff members at other businesses in the building report being “somewhat surprised” to see the mysterious tycoons in their workplace. Their purpose is unclear, but a spokesman for Gudmundsson assured the men are renting the office temporarily solely as a place to finalise paperwork connected to Old Landsbanki. Others are not so sure.
Meanwhile, the Icesave deal doesn’t seem to be getting any more popular with the general public who don’t see why they should be saddled with massive debts for the irresponsible actions of a private company.
A protest is planned again for this afternoon at 15.00 outside parliament and a Facebook group urging parliament to reject the contract has over 30,000 members and was growing by a thousand a day last time IceNews checked.
If you’re wondering, the photo for this post is of former part owner of Landsbanki, Bjorgolfur Thor Björgolfsson, and his wife, Kristin Olafsdottir, enjoying the good life on a yacht in Cannes last month. The photo was sent to many of the Icelandic media by political activists after appearing on the Huffington Post.
“Furious Icelanders have recently been posting this photograph on Icelandic blogs as evidence both that crime pays and that money doesn’t necessarily buy taste. Every woman, man and child in Iceland stands to be indebted to the tune of USD 16,000 to repay British customers who deposited their savings into “Icesave” accounts in the bank’s London subsidiary. The London bank granted a USD 327 million loan to one of Bjorgolfur’s companies, whose outstanding debts to the now state-owned Landsbanki amount to USD 310 million,” Iris Erlingsdottir says on HuffingtonPost.com.
Is it possible they are meeting underground with the other rats that have been involved with this crisis:
Camus’s novel, “La Peste,” “The Plague.” The rats go back down into the sewer. But they’re always breeding. They’re always carrying the bacilli. And one day, one day they will again send up their corpses to die in a free city.
It´s only a matter of time, people forget rather quickly!
f####### them all!
This is an example of no punishement. Takes us to wonder about the definition of financial criminality,if u steal 5kr, you go to jail .If u steal a whole people s money u just enjoy your life and those people pay for your mistakes…
How sad..Iceland today
Too bad, the people who plundered all the money did got away. There is nothing the Icelandic people can do but whimper and pay for it. The damage is done and the scammers have done a great job of stashing all their money elsewhere where they will be enjoying the rest of their lives in a blissful existence. The Icelandic people have been duped big time. I guess crime does pay in this case. There is no way they will ever be punished. When the people in power commit crimes, it is always the common people who suffers because the common people are powerless. I wish the Icelandics well. The truth will free you.
I wonder when the Icelandic public are going to realise that debt arises becuase Icesave paid for exactly this sort of protection. They did everything asked by the Icelandic government. The fault lies the governments misjudgement of the risk and the payments required to protect that risk.
If the depositor protection scheme wasn’t there, Icesave would have never been able to accumulate the debt in the first place.
The blame lies entirely with the Icelandic government for allowing this to happen, not a ‘private company’
>If the depositor protection scheme wasn’t there, Icesave would have never >been able to accumulate the debt in the first place.
>
>The blame lies entirely with the Icelandic government for allowing this to >happen, not a ‘private company
You mean it lies with Directive 94/19/EC. For readers please scroll down to here >>>
Björgólfur Thor paid with his own money for Landsbanki in the privatization.
Jón Ásgeir has much more to answer for than Björgólfur Thor.
http://www.icenews.is/index.php/2009/06/09/icelandic-‘outvasion-vikings’-took-huge-loans-in-the-uk/
http://www.icenews.is/index.php/2009/06/08/politicians’-pride-angers-man-on-street/#comment-80490
>>> Peter – London does have articulate mouth but unfortauntely he always use it to say misleading things. I wish he would improve but many poster here have asked him politely not to keep giving misleading informations.
But he continues:
http://www.icenews.is/index.php/2009/06/16/former-iceland-pm-defends-bank-privatisation/comment-page-1/#comment-81542
Once again Fisy, if you want to be a country then you have to take responsibility for your actions.
After all, if Iceland had dodged the bullet because the EU had mandated that no country’s banking sector could represent more than x% of GDP, you’d be here talking about how the EU was afraid of Icelandic entrepreneurship.
Well, the government in Iceland did agree to take over the bankrupted banks.
- the reason to why the common Icelander is now stuck with the Icesafe
- and the reason to why they are demonstrating on the streets at the moment: They had and have nothing to do with Icesafe directly, hence they want the government to
A// realize it was a bad idea to take over the private banks and
B// drop the icesafe repayments.
Fisy your argument come down to – we could take the money and its the EU fault for allowing us to do so.
Well, as you now know, the EU laws tell Iceland to repay the Icesave depositor protection money.
You can be revisionist as much as you like, Iceland will payback the debts.. is has absolutely no choice.
BTW, talk about misleading? You claimed that the 1.6billion euro collected in Holland from May 2008 were in *response* to the demand in October 2008 by the EBC for they funds to be returned. Smart Vikings eh, now they cam predict the future.
http://newsfrettir.com/economy-a-finance/general/919-commentary-were-unable-to-stop-icesave
It is quite clear even reading from that article about the Dutch Icesave swindle that the EU legislation was ridden with holes.
Fisy has a fair point when he applies blame to the the EU legislation which gave Banks/financial institutions almost a carte blanche to regulate themselves and that combined with blatant government compliance.
Responsibility to repay savers deposits is another issue and any sane person would be angry at the compliance of the Government in protecting banks and the main culprits of these crimes,
who acted with the lowest form of greedy cynicism.
I am also sure that Finance regulaters authorities were impotent in dealing with a Banking sector gone wild on avoidance/evasion in the UK and other EU countries. That points to a seriously defective EU scheme to regulate rampant greed.
Please separate the concept of blame from the concept of responsibility
@C.A.K. Assuming that the EU reading of the EEA deposit guarantee is correct, the Icelandic government would have been responsible for the 20k euro guarantee even if it let the banks collapse totally.
Where the government’s action in creating the New banks exposes them to risk, it’s that they might be persued by the creditors of the old banks. Likewise regarding the last minute prioritisation of depositors over other creditors, which will have saved the government a huge amount as otherwise the majority of the Landsbanki assets would have gone to paying off creditors not covered by the EEA guarantee.
Note that I’m not commenting on the validity of any creditor claims. I’d assume that they’d run into the problem that Iceland is a sovereign country and can therefore change the law as it likes. Mike (Nordic Analyst) knows a lot more than I do about it though and IIRC he thinks that the creditors will not be blocked by the emergency law.
I read this and thought that it might interest some regular IceNews readers:
http://www.forbes.com/2009/06/16/britain-netherlands-icesave-landsbanki-dgf-opinions-contributors-iceland.html
Alex, editor
You’ll need to start a whole new topic for that one Alex :) .
I think the best bit about it is that there you have a professor of economics (and politics to boot) waving the idiot patriotism banner. Instead he could have taken the time to use his skills to evaluate the situation.
For example, why has every top level Icelandic politician involved, representing the entire political spectrum from David Oddsson to Steingrimur Sigfusson, wanted the IMF loan? What would be the effects on the Icelandic economy if they were barred from the EEA?
So, what happens if the Icelandic parliamentarians don’t ratify the agreement next week? From the BBC news a week ago, I thought the deal was done and dusted. Now I understand why the protestors are banging pot and pans outside parliament this week – a few days left to influence their leaders.
>So, what happens if the Icelandic parliamentarians don’t ratify the agreement next week?
I’d like to know that too. I’ve always assumed that the IMF/Nordic/Polish loans would not be finalised and Iceland might be suspended from the EEA, but I’ve yet to see anyone state that. Of course the assets would be refrozen, possibly this time along with all Icelandic state assets (as it would presumably be seen as a sovereign default over here).
From http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31994L0019:EN:HTML
“Whereas in the event of the closure of an insolvent credit institution the depositors at any branches situated in a Member State other than that in which the credit institution has its head office must be protected by the same guarantee scheme as the institution’s other depositors;”
So, Iceland, by protecting domestic bank accounts, automatically agreed to protect other nationals accounts as well.
The alternative is that Iceland can decide not to honour the depositor protection scheme and close all the bank accounts, with depositors losing everything.
How can a professor of economics spout such idiotic garbage? Then again, that are the sort of person who put Iceland where it is.
To Peter – London
Few lines down in the 94/19/EC directive you quoted you can find the following paragraph:
>>>>Whereas it is not indispensable, in this Directive, to harmonize the methods of financing schemes guaranteeing deposits or credit institutions themselves, given, on the one hand, that the cost of financing such schemes must be borne, in principle, by credit institutions themselves and, on the other hand, that the financing capacity of such schemes must be in proportion to their liabilities; whereas this must not, however, jeopardize the stability of the banking system of the Member State concerned;
Two main points can be derived from this paragraph:
1) “The financing of the guarantee scheme MUST be borne, in principle, by the banks themselves”. This shows it was the intention of the directive that the banks, not goverments would be required to provide funding for their respective guarantee scheme.
2) “This MUST NOT, however, jeopardize the stability of the banking system of the Member State concerned.” It is very clear that Iceland with total foreign currency reserves of about 2 Billion Euros in October, paying out to the foreign currency IceSave depositors 3-4 Billion Euros, would indeed easily have jeopardized the stability of the banking system.
When you have two or more articles in a legal agreement that have a potential conflicting interpretation, the only “correct” way to resolve the issue is to submit it to an independent court. The question would be, which articles would override the others, the equality between depositors in different countries/currencies on one hand, or the financing of the guarantee scheme and the stability of the banking system on the other hand.
What we have here, is that the authors of the directive either decided to ignore or didn’t foresee the potential for situation to arise where the payment of the minimum deposit guarantee would simply outstrip the member state banks or even country’s ability to pay, which is exactly what happened with Iceland.
Please remember what one of the main original purpose of depositor guarantee scheme’s is. It is NOT to just “pay out” every single depositor of a failed bank. In fact it is easy to show this is often an impossible task, simply because there is not enough “money” available if the bank is large enough compared to the underlying economy. This is the reason most governments prefer that failed banks are taken over instead by a larger banks or some other means, rather than closing it down. The Icelandic government simply didn’t have that option available.
Instead the purpose of the depositor guarantee scheme, is to instill faith in the banking system, so the depositors will NOT be scared to withdraw their deposits. This is exactly what the Icelandic government accomplished with the emergency laws last October for the depositors in Icelandic currency. It would never have been possible for the Icelandic government to do the same for the IceSave accounts, simply because it involved more foreign currency than they had access to. That is the reason the UK and Dutch governments had to step in instead and cover those deposits.
The article in the Forbes, which you call “idiotic garbage”, is actually quite well written and makes the case that the agreement that is now being “forced” on the Icelandic government, is actually made under duress, and could possibly if accepted by the Icelandic parliament cause enormous damage to the Icelandic society, if the Landsbanki assets will not be enough to cover the loans.
I would now give the agreement at most only 50/50 chance of passing in the parliament, and the likelyhood actually going down as we learn more about the “hidden” agreement itself, which seems to be extremely one-sided.
To Bromley86:
>>>>For example, why has every top level Icelandic politician involved, representing the entire political spectrum from David Oddsson to Steingrimur Sigfusson, wanted the IMF loan? What would be the effects on the Icelandic economy if they were barred from the EEA?
Not that it is my intention to in any way excuse or defend David Oddsson (he bears much responsibility for the mess Iceland is now in), but it was pretty clear from his statements and actions that he was dead set against the idea of getting the IMF loan from the start.
It would be devastating for the Icelandic economy if Iceland were to be removed from the EEA, and it would quite possibly cause the country to default on all its obligations.
Bjarni,
I may be wrong, but I think Oddsson was against the IMF loan at the start. By mid October his position had changed, perhaps after the Russian loan fell through?
http://www.icelandreview.com/icelandreview/search/news/Default.asp?ew_0_a_id=314063
To Bromley86:
>>>>I may be wrong, but I think Oddsson was against the IMF loan at the start. By mid October his position had changed, perhaps after the Russian loan fell through?
It is my sense, that many of the Icelandic politicians would have liked to avoid the IMF, but it became clear that no other country (except Faroe Islands) would loan Iceland the foreign currency it desperately needed, without it first going to the IMF. The central bank board was forced to give in, which is something that David Oddsson does not often do. The IMF loan agreement was then (and still is) used as leverage to force the Icelandic government to accept the responsibility for the IceSave accounts deposit guarantee, without submitting the dispute first to an independent court.
If someone is hiding Björgolf in a basement somewhere
in London this belongs to him.
http://www.hvitbok.vg/Frett/9487/
On Jun 19, 2009, Bjarni said:
Few lines down in the 94/19/EC directive you quoted you can find the following paragraph:
>>>>Whereas it is not indispensable, in this Directive, to harmonize the methods of financing schemes guaranteeing deposits or credit institutions themselves, given, on the one hand, that the cost of financing such schemes must be borne, in principle, by credit institutions themselves and, on the other hand, that the financing capacity of such schemes must be in proportion to their liabilities; whereas this must not, however, jeopardize the stability of the banking system of the Member State concerned;
The facts as interpreted by the EU -
1. Banks should not be allowed to build up so much debt that it would “jeopardize the stability of the banking system”. The depositor protector scheme should be sufficient to to cover the liabilities; the two are related and fixed.
2. “the cost of financing such schemes must be borne, in principle, by credit institutions themselves”. Again, its quite clear, a protection scheme has to be sufficient to cover the level of protection required.
3. There should be no differential treatment of depositors based on country. No argument on this principle as its the basis of the EU function.
Iceland decided to borrow as much as it like with the self deception that it could simply decide how much it was liable for based on how much it could afford to pay – not how much its liabilities were.
Well tough, as I said before, this sort of thieves logic is why Iceland is up **** creek.
On Jun 19, 2009, Bjarni said:
“Instead the purpose of the depositor guarantee scheme, is to instill faith in the banking system, so the depositors will NOT be scared to withdraw their deposits. This is exactly what the Icelandic government accomplished with the emergency laws last October for the depositors in Icelandic currency. It would never have been possible for the Icelandic government to do the same for the IceSave accounts, simply because it involved more foreign currency than they had access to. That is the reason the UK and Dutch governments had to step in instead and cover those deposits.”
You do understand that regulation of the banking system is the responsibility of the Icelandic government and failure to do that properly will mean that the the total consequences will fall back to the country?
Banks are not ‘Private Companies’ they perform magic trick of convincing lenders to give them money and leveraging it out. The ONLY reason they can do this is this is that there is a certainty the money will be repaid NO MATTER WHAT HAPPENS.
The regulator, in this case Iceland, guarantees the banks.
Now; its becoming very clear that Icelanders do not understand the concept of a guarantee and with it the concept of a Bank. You borrow money, make money from it, pay it back ..if you can. You don’t have the option of saying, “gee, we can never repay you as we spent the lot”
Its not surprising that an article about Icelanders described the men (not the women) as incredibly stupid. The worlds worst bankers, certainly.
Iceland’s agreement with the Netherlands has been published:
http://visir.is/assets/pdf/XZ679618.PDF
Anyone got a link to Iceland’s agreement with the UK?
>Anyone got a link to Iceland’s agreement with the UK?
EDA has both:
http://www.economicdisasterarea.com/index.php/features/the-icesave-agreements-pdf/
To Peter – London:
>>>>You do understand that regulation of the banking system is the responsibility of the Icelandic government and failure to do that properly will mean that the the total consequences will fall back to the country?
I do agree that the regulation of the Icelandic banks was the responsibility of the Icelandic government, as it is in every country. This regulation is based on both Icelandic banking laws and various European and International laws that apply. The purpose of the Icelandic regulators (ICB and FME) was to enforce those laws.
It is not fully clear yet from the few facts that have been published so far, whether any of those laws were broken in such material way, that it actually helped cause the crash.
There have been published reports of numerous “bad” loan deals in the Icelandic press, but it has not been shown yet whether those deals were actually breaking any of the relevant laws. I have stated here before, that in my view at least some of these deals should have been considered “illegal”.
I do not agree that “failure to do that [regulation] properly will mean that the the total consequences will fall back to the country?”. Of course, Iceland bears the brunt of the consequences and it already is through the near collapse of its economy. But the problem with the Icelandic banks was not an isolated incident. It was just an extreme case of banking deregulation and unhindered expansion of credit, that the whole world is now working itself through of unwinding. And the consequnces of that process is currently being felt around the world.
>>>>Banks are not ‘Private Companies’ they perform magic trick of convincing lenders to give them money and leveraging it out. The ONLY reason they can do this is this is that there is a certainty the money will be repaid NO MATTER WHAT HAPPENS.
Actually, the Icelandic banks were in fact ‘Private Companies’. They were doing exactly the same things (what you call “magic trick”) as every other bank in the world, that is taking in deposits and borrowing money, and then lending it out at a higher interest rate.
As been covered several times already in previous posts here on IceNews, it is easy to show that NO bank in the world can guarantee with certainty that all the money they receive will be repaid. There simply isn’t enough money in circulation to make this guarantee always absolutely hold.
And when you have banks operating mainly in different currency, as was the case with the Icelandic banks, the ability of the home country to back them up is always going to be severly limited. This lack of “lender of last resort”, in fact played a major role in causing the Icelandic banking crash in October.
>>>>The regulator, in this case Iceland, guarantees the banks.
Not true. According to the EU directive, the Icelandic deposit guarantee fund, was guaranteeing the first 20K of the deposits. Some European governments have decided by themselves to extend the guarantee to cover larger amounts, but this has always been by the choice of each government. The Icelandic government came under heavy pressure from other governments to this also for the IceSave account depositors. The Icelandic parliament is now debating whether it will accept this additional guarantee and it remains to be seen what will happen there.
>>>>Now; its becoming very clear that Icelanders do not understand the concept of a guarantee and with it the concept of a Bank. You borrow money, make money from it, pay it back ..if you can. You don’t have the option of saying, “gee, we can never repay you as we spent the lot”
Actually as is probably true in any country, there are people in Iceland that do understand the concept of guarantee and there are people that do not.
For the people that spend too much of the money they have borrowed, there exists in most countries for that very reason some form of bankruptcy laws, that indeed effectively allows people to say “gee, we can never repay you as we spent the lot.”.
There seems to be some misunderstanding here, that the main cause of the Icelandic banking crash, is it happened because people in Iceland just spent all the money that was received from foreign depositors and lenders.
Although Iceland was indeed living beyond its means through a relatively large trade deficit, most of the foreign money received by the Icelandic banks was used to make loans to foreign entities. The actual losses of those loans are still unclear and will be for years to come. Based on some published reports and analysis, there is a chance that some of the losses will have been as a result of an outright fraud, but this is still unproven allegation.
Back to the subject of guarantees, of course, if the original loan contract specifies another person as guaranteeing the loan, then the bank can go after that person assets instead. If that person also becomes bankrupt, then typically the bank will have to take the loss itself and cannot find just some third person that has money.
In the case of IceSave, you can look at Landsbanki as the original bankruptie, Icelandic deposit guarantee fund as the guaranteur, and Icelandic government as the third person. What the lenders (UK/Netherlands) are trying to do with the current agreement is to force Iceland to become the ultimate guaranteur.
For those of us that have read the EU directive to try to determine if it requires the Icelandic government to guarantee the payment of the 20K Euro deposits, the only thing we request is that the dispute around the interpretation of its various articles (some of which are conflicting), is submitted to an independent court for review, although this will proably never happen, due to political pressure.
>>>>Its not surprising that an article about Icelanders described the men (not the women) as incredibly stupid. The worlds worst bankers, certainly.
This last statement is itself so stupid that I will not even try to answer it. In fact, it tells more about you as a person, rather than the Icelanders, but you are of course entitled to your opinion.
The following two sentences in my last response to Peter – London had some inaccuracies in it:
>>>>Some European governments have decided by themselves to extend the guarantee to cover larger amounts, but this has always been by the choice of each government. The Icelandic government came under heavy pressure from other governments to this also for the IceSave account depositors.
To make sure the meaning is correct, it should rather read as follows:
Some European governments have decided by themselves to cover the first 20K deposit guarantee (as most guarantee funds do not have enough money) or to extend the guarantee to cover even larger amounts, but this has always been by the choice of each government. The Icelandic government came under heavy pressure from other governments to provide guarantee for the first 20K of the IceSave account depositors.
Bjarni wrote:-
“The Icelandic government came under heavy pressure from other governments to provide guarantee for the first 20K of the IceSave account depositors.”
Well, there’s a very good reason for that. In its British website Icesave in effect said that in the unlikely event of the collapse of the bank, the retail deposits of ordinary savers would have the first €20,887 of their deposits protected by the Icelandic compensation scheme, and the difference between that sum and £30,000 would be covered by the UK scheme.
I’m sure that the Icelandic financial authorities, and the less financially illiterate members of the Icelandic government, knew that. If they didn’t like what Icesave said about the compensation because it might turn out to be very expensive for the Icelandic taxpayer they should have done something about it. If they believed that what Icesave said was unenforceable in international law, but decided to keep quiet about it because it was foreigners who were potentially being ripped off by Icelandic banks, then they were being dishonest.
Anyway, as we all know, for whatever reason they kept quiet and did nothing about it. So depositors in the British and Dutch branches of Icesave had no reason to believe that their investments were not safe up to the guaranteed amounts under the various compensation schemes. As it was Icelanders and their employees, and nobody else, who let them think that, I’m afraid that particular buck stops with the Icelanders.
On Jun 21, 2009, Bjarni said: ”
Actually, the Icelandic banks were in fact ‘Private Companies’. They were doing exactly the same things (what you call “magic trick”) as every other bank in the world, that is taking in deposits and borrowing money, and then lending it out at a higher interest rate.
As been covered several times already in previous posts here on IceNews, it is easy to show that NO bank in the world can guarantee with certainty that all the money they receive will be repaid. There simply isn’t enough money in circulation to make this guarantee always absolutely hold. ”
You see, this is where I think Icelanders fundamentally misunderstand banking. Banks are private companies, but no matter what, they can only exist if the government entity behind them guarantee’s to bail them out. A ‘Private Company’ cannot be a bank as it has limited liability. A bank and a currency are one and the same becuase banks fabricate that currency out of thin air, if that money is worthless, so is the currency – as has been demonstrated with Iceland – and so is the bank.
To Peter – London:
>>>>The facts as interpreted by the EU -
“Facts” should actually not be determined by what some person or entity “interpretes” them to be, but rather what can be established from verifiable documentation and the relevant evidence. As one well known senator from New York once said: “You are entitled to your opinion, but you’re not entitled to your own facts.”
>>>>1. Banks should not be allowed to build up so much debt that it would “jeopardize the stability of the banking system”. The depositor protector scheme should be sufficient to to cover the liabilities; the two are related and fixed.
You seem to be mixing up two different things here. The EU directive says nothing about how much debt banks are allowed to build up. Instead it says that while the financing of the depositor guarantee schemes must be in proportion of the banks liabilities, it must not be so high it would jeopardize the stability of the banking system.
It is well known issue, that depositor guarantee schemes that take in payments anywhere between 0.5% and 1% of the total deposits, as most European guarantee schemes do, will never have enough funds to pay out to all the depositors. This is the reason, many European governments decided last fall to guarantee themselves the minimum amounts and in some cases increased those amounts to avoid the total collapse of their respective system. Iceland simply never had this option available, since it did not have access to enough foreign currency to cover even the minimum guarantee.
There are several other countries that would potentially be in the same situation, if their banking system would be threatened. For example, Switzerland has its own relatively small currency, and at the same time has large international banks (UBS, CreditSuisse) that are several times the size of their GDP and have many of their customer deposits in foreign currencies. United Kingdom, although it is considerably bigger, would have the same potential problem, if a large international bank such as HSBC would be threatened.
>>>>2. “the cost of financing such schemes must be borne, in principle, by credit institutions themselves”. Again, its quite clear, a protection scheme has to be sufficient to cover the level of protection required.
You can easily see that the ONLY way this could be true, is if you would place the full amount of the protection into the deposit guarantee scheme, not just the standard 0.5% – 1%. Otherwise you would never be able to cover all the depositors, in case of complete banking meltdown (like happened in Iceland).
>>>>3. There should be no differential treatment of depositors based on country. No argument on this principle as its the basis of the EU function.
This is indeed contained in one of the articles of the EU directive. What the authors of the directive failed to take into account, is was what happens when banks have majority of their customers in a different currency than the guarantee scheme funds? The Icelandic deposit guarantee fund (and even Iceland itself) simply didn’t have access to enough foreign currency to cover even the 20K Euros minimum.
Even if the Icelandic parliament decides now to accept this guarantee, if it turns out later that the recoverable assets of Landsbanki will not be enough to cover the UK/Netherlands loans, Iceland will have very little ability to service this foreign debt and will face high likelyhood of a sovereign default.
>>>>Iceland decided to borrow as much as it like with the self deception that it could simply decide how much it was liable for based on how much it could afford to pay – not how much its liabilities were.
You are mixing here again, Iceland with the Icelandic banks. It was the banks that decided to borrow and take deposits in foreign currencies, to fund their foreign expansion efforts, not the Icelandic state.
The Icelandic banks did this based on the current EU regulations that allows banks to open branches and subsidiaries in other European countries. Even if the regulators would have wanted to, there was in reality very little they could do to stop them (the Dutch regulators even tried).
There are now some movements to change the EU regulations (passport rules) to limit the opening of branches for foreign banks. See: http://online.wsj.com/article/BT-CO-20090619-706620.html
To Mike:
>>>>Well, there’s a very good reason for that. In its British website Icesave in effect said that in the unlikely event of the collapse of the bank, the retail deposits of ordinary savers would have the first €20,887 of their deposits protected by the Icelandic compensation scheme, and the difference between that sum and £30,000 would be covered by the UK scheme.
I am sure the IceSave web site indeed mentioned the Icelandic compensation scheme, but what most people don’t seem to have realized is that a country with only 300K inhabitatants, cannot possibly guarantee deposits of 500-600K people (total depositors with the Icelandic banks).
>>>>I’m sure that the Icelandic financial authorities, and the less financially illiterate members of the Icelandic government, knew that. If they didn’t like what Icesave said about the compensation because it might turn out to be very expensive for the Icelandic taxpayer they should have done something about it. If they believed that what Icesave said was unenforceable in international law, but decided to keep quiet about it because it was foreigners who were potentially being ripped off by Icelandic banks, then they were being dishonest.
Although I do not want to suggest I know what the Icelandic authorities knew and believed, I think its pretty clear due to their inexperience they simply had no idea before the crash how dangerous situation they had on their hands during 2007-2008 due to the foreign expansion of the banks. Certainly, none of them realized at the time that the whole Icelandic banking system could collapse in the period of just 10 days. If they had, then maybe they would have spent some time thinking about what IceSave was saying to its foreign customers, and whether the Icelandic compensation scheme would indeed have enough funds.
>>>>Anyway, as we all know, for whatever reason they kept quiet and did nothing about it. So depositors in the British and Dutch branches of Icesave had no reason to believe that their investments were not safe up to the guaranteed amounts under the various compensation schemes. As it was Icelanders and their employees, and nobody else, who let them think that, I’m afraid that particular buck stops with the Icelanders.
As mentioned here above, most likely the Icelandic authorities simply didn’t fully realize the potential problem with the IceSave accounts, and did not spend much of their time worrying about it. Since they were only marketed to foreign depositors, IceSave was almost never in the news in Iceland and most people there didn’t even know they existed before the crash.
When you say “Icelanders and their employees”, you probably meant instead “Icelandic banks and their employees”. In that context, I would agree that the buck should stop with the “Icelandic banks”. The Icelandic public on the other hand had very little to do with the Icelandic banks, and has little interest or ability to cover their failures.
To Peter – London:
>>>>You see, this is where I think Icelanders fundamentally misunderstand banking. Banks are private companies, but no matter what, they can only exist if the government entity behind them guarantee’s to bail them out. A ‘Private Company’ cannot be a bank as it has limited liability. A bank and a currency are one and the same becuase banks fabricate that currency out of thin air, if that money is worthless, so is the currency – as has been demonstrated with Iceland – and so is the bank.
All three of the Icelandic banks were formed as “hlutafelag”, abbreviated “hf.”, which means in Iceland they were indeed private companies with limited liability for their private owners.
You are actually on to something when you say “money is worthless”. If you spend some time thinking what money really is, it actually represents debt, that can be exchanged in the future for something of value (goods). Money only has value so long as people continue to believe in it.
For Iceland, the krona still has some value inside the country itself, but it is now considered worthless currency for most people outside Iceland. If the massive bailouts performed by various governments in September/October last year would have failed, Iceland would not have been the only country to have its banking system completely collapse.
For an interesting take on the real value of money, I would recommend watching: http://www.youtube.com/watch?v=vVkFb26u9g8&feature=fvw
To Peter – London:
>>>>Banks are private companies, but no matter what, they can only exist if the government entity behind them guarantee’s to bail them out.
Few more comments on your above claim that all governments have to automatically guarantee to bail out any failed banks in their country.
After the crash in October, this point has been heavily researched by various legal scholars in Iceland. According to their published opinions, the ONLY way the Icelandic government can authorize ANY guarantee, is by passing a specific law for it in the parliament. Unfortunately I have only seen those legal opinions in Icelandic, so I am unable to provide references to them in English. Therefore based on these legal opinions, if and only if the Icelandic parliament now passes the UK/Netherland agreements, will the IceSave guarantee be legally authorized and enforcible in Iceland.
I would not claim to be any kind of an expert in international laws, but I would assume the same would apply for most other countries also. If you have any specfic references to laws, either in Iceland or in other European countries, that establishes this kind of “automatic” bank bailout guarantee by their respective governments, I would be interested in learning more about it. Please include full reference to the law, and exact quotes of the relevant articles and their scope.
If you are not able to provide those references, we will have to assume that these are instead just your own personal opinions.
On Jun 22, 2009, Bjarni said:
“After the crash in October, this point has been heavily researched by various legal scholars in Iceland. According to their published opinions, the ONLY way the Icelandic government can authorize ANY guarantee, is by passing a specific law for it in the parliament. Unfortunately I have only seen those legal opinions in Icelandic, so I am unable to provide references to them in English. Therefore based on these legal opinions, if and only if the Icelandic parliament now passes the UK/Netherland agreements, will the IceSave guarantee be legally authorized and enforcible in Iceland.”
Membership of the EFTA requires the automatic acceptance of EU laws in certain areas. The EU told the Icelandic government’s that its interpretation of the law was wrong and that’s why they agree to the repayment of the loan.
Of course if Iceland leaves the EFTA then they MIGHT be able to refuse to repay the debt. However, the EU would probably never write off the debt and it will be a massive impediment ….for ever.
To Peter – London:
>>>>Membership of the EFTA requires the automatic acceptance of EU laws in certain areas. The EU told the Icelandic government’s that its interpretation of the law was wrong and that’s why they agree to the repayment of the loan.
The interesting part of your sentence is actually the “EU told Icelandic government” part. When you have two parties that have a dispute about the interpretation of law, the correct venue to resolve the differences is in front of an independent court.
>>>>Of course if Iceland leaves the EFTA then they MIGHT be able to refuse to repay the debt. However, the EU would probably never write off the debt and it will be a massive impediment ….for ever.
Well, we will then have a very interesting situation, IF the Icelandic parliament decides not to accept the guarantee in the current UK/Netherland agreements. Just the interest payments of those loans are equal to about 2% of Icelands GDP per year.
It came out in the Icelandic news yesterday, that those interest payments would NOT be considered priority claims to the old Landsbanki, and would therefore almost certainly have to be paid directly by Iceland. This would be on top of other interest payments that already Iceland has to pay on its existing foreign debt, and since those loans are all in foreign currencies could only be financed by positive trade balance.
It does not take a lot of effort to figure out that it is not possible for any country to pay high percentage of its GDP in foreign currency interest payments each year, let alone the loan balance. This agreement as its currently written would therefore almost certainly lead to a full sovereign default of Iceland in few years when those payments come in full force.
But is 2% a high percentage? That’s a genuine question, as I’ve no idea.
I has a quick look to find the cost of servicing US debt and got $450bn in 2008 (not the best source, so correct me if I’m out):
http://kishorekumar62.wordpress.com/2009/02/14/nightmare-on-15th-st/
Total 2008 US GDP is $14.3tn.
http://en.wikipedia.org/wiki/US_GDP
So, pre bail-out, we were looking at 3.1%. I imagine that’s higher now.
On Jun 23, 2009, Bjarni said:
“The interesting part of your sentence is actually the “EU told Icelandic government” part. When you have two parties that have a dispute about the interpretation of law, the correct venue to resolve the differences is in front of an independent court.”
There is no dispute, simply a ridiculous attempt by some Icelanders to claim there is. You cannot decide to live in a parallel universe where Iceland’s banks operate with different principles to every country in the world.
Although that’s exactly how they operated before the crash.
The law is clear, protect depositors and treat domestic and EU depositors the same. There is no wiggle room in that.
On Jun 23, 2009, Bjarni said:
“The interesting part of your sentence is actually the “EU told Icelandic government” part. When you have two parties that have a dispute about the interpretation of law, the correct venue to resolve the differences is in front of an independent court.”
I should have explained, as you obviously are unaware of it, that membership of the EFTA requires members to put EU law in place automatically with no discussion or influence in their creation. I believe a Norwegian described it as ‘Fax laws’, the laws are faxed through from the EU as they are created.
As I understand it, the EU directs the actions of those laws and there is no recourse whatsoever.
To Bromley86:
>>>>But is 2% a high percentage? That’s a genuine question, as I’ve no idea.
If this was the only foreign payments or could be paid in ISK, it would maybe not be so difficult. But, in Iceland’s case this will be on top of all other debt payments, and furthermore has to be made in foreign currency which is the killer.
Iceland has only two real export industries, energy (through aluminium smelters) and fish products, both of which are currently suffering from low prices.
The US has the luxury of having all its foreign debt in its own currency and therefore always has the option of adding more dollars. This can of course cause long term problems (inflation, credibility, etc.), but its still much better option than a forced sovereign default.
So, when will the Icesave agreements be ratified or rejected by parliament?
To Peter – London:
>>>>There is no dispute, simply a ridiculous attempt by some Icelanders to claim there is. You cannot decide to live in a parallel universe where Iceland’s banks operate with different principles to every country in the world.
Yes, there is a dispute, since we do not agree EU.
>>>The law is clear, protect depositors and treat domestic and EU depositors the same. There is no wiggle room in that.
EU did not take into account the possibility of the the banking system being much larger than the home country and operating in a different currency. If the Icelandic parliament authorizes the guarantee, there is a relatively high chance it will be forced to default on the payments when they start in 2016.
The Icesave guarantee is indeed a breach of contract case, but Iceland has not yet had the chance to present its side.
You can have a total breach or a partial breach, and defenses to a breach. So that the amount of damages can be reduced if it’s only a partial breach, or if the defendant produces defenses, or mitigating factors. In other words, Iceland could make a number of arguments (such as Bjarni has made) that would reduce the amount of damages. Iceland could argue that only the insurance fund was responsible, or that only 2% maximim of total deposits were owed. Or there was the equivalent of contributory negligence by the British (ie a breach by the UK of its duties, when it didn’t monitor the banks, or causing all 3 Icelandic banks to fail), or changed conditions or force majeure (ie the total collapse of all three Icelandic banks plus the collapse of the Icelandic economy), fraud by the banks on the Icelandic government (thus relieving the government of whole or partial responsibility), violation of bank officers and directors duties, failure to mitigate damages by the UK by not pursuing the crooks who took the money to Luxembourg and Caymans, and so on.
Iceland should at least get the chance to present its side before a neutral court, rather than just accepting the decision by the EU that there has been a full breach of contract with maximum damages due. This could be the EES (EFTA) court with appeal to the EU court, or even an arbitration court established just for this one case.
The Icelandic government could file a complaint in British courts to have the UK claim on Landsbanki assets removed, and then file a motion to have the case moved to an impartial location, such as Ireland or Switzerland. Of course the UK courts would deny the request to unfreeze assets – but how could they refuse the motion for a neutral country court, after all the negative publicity about Iceland in the British media?
See also:
http://icelandtalks.wordpress.com/2009/06/23/icesave-and-the-collapse-of-eu-regulations/
On Jun 21, 2009, Peter – London said:
>You see, this is where I think Icelanders fundamentally misunderstand banking.
A usual generalizing statement from you which just shows how little about banking and its history ( and nearly all of what you post about on here ) you know Peter – London.
Really why do you post your mixed up untruths here — you are corrected many times but keep on saying same misleading things — more and more mixed up and confused.
No doubt you are ignorant of difference between banking and fractional reserve banking, fiat currencys and depositor insurance.
( Bjarni has done the usual good factual post but I think he assume too much about you background and general knowledge. Let me try once again to get through to you. )
>Banks are private companies, but no matter what, they can only exist if the
>government entity behind them guarantee’s to bail them out.
Banking and fractional reserve banking have existed for long before deposit schemes were started as result of great depression in US ( a depression that was caused by the Federal Reserve’s policies them selves ).
It is depositor guarantee scheme that have created at best moral hazard at worst they have created unstustainable bubbles as we saw collapse so recently.
Do you think that if Long Term Capital Management in US had NOT been bailed out under direction of US Federal Reserve this Wall Street banks would have taken risks they did since 1998 and particulerly with this sub prime lending which is at base of all recent banking problems?
Not a chance.
It has been made worse by this bailouts in US and UK where this taxpayer money is thrown down the gurgling drain of they banks balance sheets.
As to the matter of they existance..
>A ‘Private Company’ cannot be a bank as it has limited liability.
Nonsense.
It is true that fractional reserve banks are regulated generally differently than normal private and listed private companies but the difference is not in the limited liability for they shareholders,
it is to do with equity and also what they can put in they books. They can do things that in a normal private company accounts would be seen as fraud.
There is very good article by John Lanchester in London Review of Books –
http://www.lrb.co.uk/v31/n10/lanc01_.html
It will enlighten you a lot. As one thing it talks about Royal Bank of Scotland as example of bank that UK FSA regulations and EU regulations completely failed on.
It was this pending failure of RBS and that of other UK banks that had a lot to do with the digusting behavior of Brown Darling towards Icelandic banks and Kauthping Singer Friedlander in particular. Using law ( Northern Rock Act ) that was put into law to try and cleanup after a mess they made themselves with the failed regulatory split that Brown made with creating the UK FSA.
And Icelander bank shareholders and bond holders is the ones that did get to suffer because of it.
On Jun 21, 2009, Peter – London continues with his strange spoutings –
A bank and a
>currency are one and the same becuase banks fabricate that currency out of thin
>air, if that money is worthless, so is the currency – as has been demonstrated with
>Iceland – and so is the bank.
If you say that modern government printed currencies ( USD, GBP, EUR, ISK ) has no intrinsic value you would be right.
They have value because of what people taking it believe about something the government that prints them has — income from tax.
Or foreign reserves of other currency with more tax payer ( although not normally in modern era it is small amount held like that ).
Basically though the value of a currency comes from the government that prints — its future ability to tax populace.
In older times were currency backed by gold or silver to act as a restrain on the government not to issue more money and cause inflation.
And in some country tax backing currency comes also from thing like oil and gas. ( In next years Iceland will get some of that backing. )
But mainly in modern era then currency is purely backed by the productivness that can be taxed of people that pay tax to it.
Seperate from that is fractional reserve banking where when a bank loans money to another bank, there is new money created by the other banks when it puts that loan onto its balance sheet and can then loan it out.
So banks ( all banks not just fractional reserve banks ) are in business of borrowing money and loaning it out for interest income secured or not against asserts, or buying assets they expect to go up in value to make profit that can be sold later.
Now Icelandic banks borrowed money from wholesale markets — other banks. And also laterly from depositors in UK, Holland, Germany.
They use this money to lend to other banks and to business people and also the individual people. They lend in majority of cases against good quality assets.
( There was NONE or minicsule amount of this taking they borrowed money and lending it on or buying this sub prime or other so called toxic asset that bank like RBS and UBS in Swiss did to huge amount.
That is why Icelandic banks assets even in bad times now are valued at 95% or more.
Something not true of RBS or UBS or Wall Street banks in US which got this bailout monies. Many of them there is no understanding at all of what this toxic assets will be priced at now or later — no clue.
That maybe they liaiblities from these assets that they do not know could be the other way — where they are worth negative ( -25% or more ) and the future taxpayer in those country is now laible for it.
That is why the worst bankers in world were on Wall Street, and maybe in UK. Icelandic banks for all they faults are well down that list topped by US and UK. )
Now given that what where you actually trying to say Peter ?
And what has it got to do with Iceland bank situation as you state?
In reply to Mike, Bjarni said :
>When you say “Icelanders and their employees”, you probably meant instead
>“Icelandic banks and their employees”. In that context, I would agree that the buck
>should stop with the “Icelandic banks”. The Icelandic public on the other hand had
>very little to do with the Icelandic banks, and has little interest or ability to cover
>their failures.
From reading about all of this there was simply not an expectation that the banks had not rolled over they wholesale loans.
Documents indicate that they did have agreemnet in place with lenders but after Lehman Brothers went bancrupt those lenders reneged on the rollover loans .
( In usual times they have no problem. But in this case no banks were lending to each other and that is when the government as lender of last resort becomes most important. This is the only time when it matters — in extereme circumstances. )
Davið and his colleague did warn about this risk in the Central Bank montetary reports but let us face it did anyone expect what happened that week to happen so quickly ? But did we hear same from FME ? Not a word.
Maybe FME did say it in private but not by looks of it enough. Only one warning in public was Central Bank of Iceland.
RBS in UK and other banks were in same position of tettering on edge.
Difference is that Darling and Brown decided to bail them out with UK taxpayer money — future taxpayer money a liaiblity to a huge crippling degree for UK economy in future years.
British people can thank the gods they have they independent currency and not Euro during this horrible after effects so that they could ave they currency devalued helping they exporters.
(As to what happened it was amazing that Davið and Central Bank operation staff were able to do they deal with JP Morgan to allow bank wires in and out of Iceland for the essentials during the bad weeks when we were in the Terrorist List at UK Treausury. )
As to further discussion of issue of what happend and about that Central Bank did give bailout LOAN money to help Kaupthing Singer and Friedlander but Darling Brown did get FSA to take it into bancrupcy before it would arrive see:
http://www.icenews.is/index.php/2009/06/22/haarde-in-dublin-ireland-worse-than-iceland/#comment-82596
>On Jun 24, 2009, Vilhjalm Antonsen said:
>
>The Icesave guarantee is indeed a breach of contract case, but Iceland has not >yet had the chance to present its side.
For once I agree with both of Vilhjalm of Norway’s posts. Except for this unless he means UK based businessmen:
>Failure to mitigate damages by the UK by not pursuing the crooks who took the money to Luxembourg and Caymans, and so on.
Robert Tchenguiz is the only one I am aware of that has been accused of doing this kind of thing.
Certainly none of the Icelander did this — although Hannes Smárason and Jón Ásgeir did other things for which I expect we will be hearing plenty in procesutions to come from special prosecutor.
Björgólfur Thor and the senior certainly not though.
It still annoy me a lot to see the nonsense posted about Icelandic business culture corruption — etc. when the reality is very different. Even Niels posts which shocked me.
Could someone post a link to the facebook group mentioned in this article?
“A protest is planned again for this afternoon at 15.00 outside parliament and a Facebook group urging parliament to reject the contract has over 30,000 members and was growing by a thousand a day last time IceNews checked.”
How could the Icelandic government NOT take these criminals to court?
Why are the bankers/largest lenders not held accountable? If any of us borrow money – we have to repay….or be taken to debtors court – should we still not cough up – this equates to jail.
Why is no one making these people accountable? Sieze their property in any country they operate in – have them repay their loans = like all of us.