An increasing number of British newspaper publishers and columnists are beginning to challenge the overall national perception of the week’s events regarding the President of Iceland’s decision to send the Icesave Bill to the nation. According to Michael Hudson in The Financial Times, Icelanders have been offered a way to describe their fears that the country could literally be ruined by taking on irresponsible or unnecessary levels of debts and interest rates.
The common misconception in earlier news coverage has been that the President’s rejection of the Icesave Bill is a refusal to pay the debt and uphold the country’s obligations. On the contrary, the Icelandic nation has already agreed to compensate the UK and Netherlands. The decision by Olafur Ragnar Grimsson stems from the fact that over 70 percent of Icelanders find the terms of the current deal unreasonable.
Jon Danielsson, a commentator for The Independent, says that the overall amount involved might not seem excessive – around GBP 3.5 billion – but with only around 300,000 people living in Iceland, that equates to about GBP 40,000 per family. The annual interest alone, if adjusted for population size, would be the equivalent of the UK paying over GBP 40 billion a year, almost half the cost of the National Health Service (NHS).
David Prosser, The Independent columnist, says that Gordon Brown, UK Prime Minister, often talks about how politicians must take tough decisions, “but he will not have faced up to many dilemmas like the one that’s troubled Icelandic President Olafur Ragnar Grimsson in recent days,” he said.
In the meantime, the readers of The Guardian’s website are voting on an informal poll entitled ‘Should Iceland be forced to pay?’
The poll was due to close today but has been extended for another three days and only one vote is allowed from each computer. Over 87 percent of respondents have so far chosen “No, it’s only a small country, give them a break” over the alternative, “Yes, a debt is a debt”.
http://www.ft.com/cms/s/0/dd0831a4-fafa-11de-94d8-00144feab49a.html?nclick_check=1
http://www.guardian.co.uk/business/poll/2010/jan/06/should-iceland-repay-icesave-debt
From those Fisy links:
And so they must muddy waters and sling as much dirt around as possible between now and the result from the UK High Court will come.
…
And now we know from out come of judicial review that UK FSA and Treasury did not actually have any good reason for it actions at all in making this administration order as it did.
From the UK High Court:
Finally, it has not been contended that the actual decision to make the Transfer Order was an unreasonable one on the information available to the Treasury, and any such argument would be plainly doomed to failure. For my part, I have difficulty in seeing what other decision the Treasury could reasonably have taken in the circumstances.
http://www.bailii.org/ew/cases/EWHC/Admin/2009/2542.html
Fisy’s postings in the High Court thread:
HTTP Error 404 Not found
Just kidding, you can see them here:
https://www.icenews.is/index.php/2009/10/21/kaupthing-loses-claim-against-british-government/
Peter London writes :
>Of course, anything else your like to factor into your wacky “banks are not banks” scheme?
Why do you always try to misdirect conversations in threads when facts start getting umconftable for UK govenrment side ?
Getting real inflation adjust returns of more than 5% per year is not possible to do risk free.
If you want more returns then you are going to be taking risks.
It does not matter if it is a bank deposit or not.
What matters about the difference is that in the time since the middle of 2008 ( after the idea of the US Federal government in 1930s ) in Europe the misguided idea that there should be blanket guarantees for all deposits did suddnely become the policy of EU govenrments in Europe.
After the actions of the Irish.
Before that the deposit schemes from 1994 was just to exist and be funded from the banks them selves.
This regulation was just horrible and has now led to this horrible IceSave mess.
It is so easy just to make this ad hominems attack on bankers without thinking things through.
Without false sense of security of Directive 94/19/EC IceSave would never have become big as it did because UK investor would have been very much more careful in doing they DD.
If you read boards of investment money forums etc at time this was the main thing was used as reason to put money in.
The deposit insurance.
Without it IceSave and other foreign banks would have made little traction into UK market which is the market that did cause all the trouble and ongoing bad feelings between governments.
That name less EU burecrats did decide that this deposit insurance was a good thing and EU parliament who did rubber stamp it have made a monster that in the end the EU memberstate governments decided in panic that they had to suddelny give state backing of deposito insurances, one at time after Ireland did it.
If there was not this deposit insrances there IceSave would not now be the burden on the shoulders of the icelandic tax payers it now is.
( I do not absolve lending of Landsbanki if it is as reckless as some sources do say but in fair ness none of the details of it loan book has come out+ so I cant tell if reckless or simply that assets are now imparied for coming years becauise of they sectors. )
+Not like the delibarabate leaking of the Kautphing loan book from UK.
https://www.icenews.is/index.php/2009/10/15/uk-sfo-iceland-trip-bearing-fruit/#comment-96439
https://www.icenews.is/index.php/2009/11/23/kaupthing-employee-accused-of-stealing-millions/#comment-102924
Fisy:
“Dont be silly. I am of course talking about real rate of return Inflation adjusted.
Factor that in and you will apreciate more what I am saying.”
Of course, anything else your like to factor into your wacky “banks are not banks” scheme?
Fisy does say: “Despite the amusing but unfair characterising postings of Mike UK Nordic analyst in his humor mode, we dont want to define ‘debt’, define ‘pay’, define ‘our’, and of course define ‘always’ etc etc.”
?? Who is this Mike UK nordic analyst?
Fisy, it’s me! Cousin Gummi! Don’t you remember?
Have you been drinking again?
Afram!
Gummi
@Gummi – “Icesave” should then at be “Frozen money”
:-%
Mike,
Usually you humor posts are very well observed even if unfair.
But as I mention before you mischaracterise the situation, and rhis latest one is little misplaced.
https://www.icenews.is/index.php/2009/12/28/icelandic-family-home-vandalised-in-uk/#comment-107980
A moral obligation exists on behalf of Icelander to pay they debts, but we want it that an impartial 3rd party does rule on it. Despite the amusing but unfair characterising postings of Mike UK Nordic analyst in his humor mode, we dont want to define ‘debt’, define ‘pay’, define ‘our’, and of course define ‘always’ etc etc. :
https://www.icenews.is/index.php/2009/07/13/the-icelandic-government-is-not-responsible-for-icesave/#comment-85522
..we want impartial thirds party to decide on that. This is the basis of coming to a political settlement that will be agreed by Icelandic people.
As the UK and Holland did not want to fix the basic stuff of Ragnar Hall issue+, despite this flaoting exchange rate offer, it is a shame because this was a real opportunity.
Our government seat idiots going off crying to the US about this was just embarrasing. They are just desperate to save they skins. It is without dignity.
+http://www.slideshare.net/hjalli/the-icesave-dispute-priorities-and-division-of-claims
http://bjarnimax.blog.is/blog/bjarnimax/entry/1003708/?t=1263146351
usual good explanations of how we got to here from Novembmer 2008, Bjarni post :
https://www.icenews.is/index.php/2010/02/24/iceland-waits-to-hear-next-icesave-step/#comment-119951
>Well, according to your bizarre definitive, depositing in virtually every bank in the UK was not a bank deposit but actually an investment, for over twenty years.
Dont be silly. I am of course talking about real rate of return Inflation adjusted.
Factor that in and you will apreciate more what I am saying.
Says Fisy: “There is time when a ” depositor ” does become an investor…”
Hear hear! Well said Fisy! It pays to remind ignorant foreigners that we Icelanders always pay our debts!
We may need another year or two to define the word ‘debt’, the word ‘we’, the word ‘pay, and the word ‘always’. And while we’re at it we may as well define the word ‘depositor’, the word ‘money’, the word ‘bank’, the word ‘forgive’, the word ‘sovereign’, and the word ‘guarantee.’ That should satisy the bullies.
Afram!
Gummi
“There is time when a ” depositor ” does become an investor, and you can read this comment to find out in detail what that is and why”
Well, according to your bizarre definitive, depositing in virtually every bank in the UK was not a bank deposit but actually an investment, for over twenty years.
http://www.omegaaccountancy.co.uk/bank-of-england/base-rates.html
Average interest rates in the UK were between 9.77% and 5% between 1977 and 1998. They went back above up to 5% in 2004.
“Even though you are dead wrong.”
You are very odd. You yourself say this in the post you linked to.
“But there is no doubt that this IceSave was deposits in a bank account.”
The rest of your argument is ridiculous; anything over 5% is no longer a deposit but an investment…. No it isn’t.
There is time when a ” depositor ” does become an investor, and you can read this comment to find out in detail what that is and why
But that’s just your opinion, rather than a definition.
Now if the government or regulators want to differentiate, then that’s fine. I’m sure that the government issuing a statement back in early 2008 that Icesave customers would be considered as investors and not depositors would have gone a long way towards removing the current guarantee problem. Of course, Landsbanki would have folded anyway and Iceland would have had to leave the EEA.
I believe that you’re likewise technically, if not necessarily philosophically, wrong with regards to your point about term deposits etc. At least as regards deposit guarantees within other European countries.
Peter London writes :
>they are not investors, they are depositors who are guaranteed
There is time when a ” depositor ” does become an investor, and you can read this comment to find out in detail what that is and why :
https://www.icenews.is/index.php/2010/01/07/bbc-newsnight-interview-with-the-icelandic-president/#comment-109284
>I’m sick of repeating this to the same idiotic comment
No as sick as I am of your repearting of your idiotic comments about the ” EU / EEA arbitration “. But at least this time you are almost making intellgient point.
Even though you are dead wrong.
“the British investor of the Icelandic banks ”
Rubbish, they are not investors, they are depositors who are guaranteed to get their money back from banks that are licensed and guaranteed by the Icelandic government.
I’m sick of repeating this to the same idiotic comment, so read this.
http://icelandweatherreport.com/2010/02/the-financial-times-has-its-say.html#comment-14000
“from a simple standpoint, the British investor of the Icelandic banks must of known that investments can go bad and money can be made and lost that’s the risk, especially as Iceland is a small country and does not have the same economic standpoint in world market. The only investors I do feel bad for are the charities that invested their money as they are non-profit organisations, so if there was some way for them to get some money back i would be happy with that overall.”
Totally wrong, these were bank deposits, not risk-based investments. People would not have made these deposits in the first place if it wasn’t for the fact that the government of an apparently respectable sovereign state stood behind them as guarantor. What you are basically all voting on now is whether to accept the consequences of your government’s actions, or behave like a rogue state.
from a simple standpoint, the British investor of the Icelandic banks must of known that investments can go bad and money can be made and lost that’s the risk, especially as Iceland is a small country and does not have the same economic standpoint in world market. The only investors I do feel bad for are the charities that invested their money as they are non-profit organisations, so if there was some way for them to get some money back i would be happy with that overall.
Hey
Nice new web site design… I hope.
On Jan 7, 2010, Mike (UK Nordic analyst) said:
>Askur and Stefan make the position quite clear, but like most Icelanders they fail to see the deal offered by the British and Dutch in the correct light.
…
>So the generous, and unasked for, proposal was that the two countries would forego their instant repayment for a more gracious and less costly (to the Icelanders) alternative. Iceland was offered a grace period to get their house back in order, and the interest rate was set at a very low and fixed value of 5.5%..
..
>But this has been dressed up as rapacious and unreasonable
The problem is that this pushing back IceSave deal with ” Ragnar Hall ” amendments neutralized in favor of UK and Holland after it was corrected in August law ammendments did leave bad taste in Icelandic mouths and for obvious good reason.
It is this main issue as Bjarni has correctly said that do make the Uk and Holland look rapacious and unreasonable.
If it was not for this main issue then UK and Holland would more be able to take a high ground but they decided to as is said in UK to ” try it on “. Problem is that now more than just incompetent ” negotiators ” and MPs in Red-Green government looking at it from Icelandic side ( and now many eyes from other places too ).
Not accepting ” Ragnar Hall ” amendments offered in August law was a huge mistake by UK and Holland negotiators.
I hope that next negotiators from UK and Holland side will get back up on high ground and with new IceSave contract that will come this issue is correctly worded.
Then reputation damage of UK and Holland governments by doing it can be repaired.
On Jan 7, 2010, Mike (UK Nordic analyst) said:
>And Fisy, Bjarni, how do you put into perspective that markets ask 8% of Iceland and only 4-5% from other countries for the same duration loans?
>
>Why do you compare the Icelandic rate of 5.5% not to the 8% rate for the government bonds?
>
>Why do you insist it has to be compared to the UK rate for their deposit scheme, even though it is completely different (much shorter duration of the loan,
>different institution responsible for paying it back), while the 5.5% can be directly compared to the 8%, as both are for the Icelandic government and for similar durations.
In above link I did respond to Leo and indirectly to Mike
https://www.icenews.is/index.php/2010/01/07/the-emergence-of-icesave-empathy-for-iceland-in-uk-media/comment-page-1/#comment-109652
Just to be clear Mike and Leo that I am talking here about the interest rate ( 5.5% to Icelandic TIF fund, vs 1.5% to British FSCS fund ) and what happens when this goes to court and issue of interest rate come up.
You know that thing that is very unpopular idea with Uk and Holland government — that this IceSave guarantee situation goes in front of the impartial legal machinery with impartial legal processes. I really have never heard any reason from the UK and Dutch governments sides why this is a bad idea.
But they do clearly fear that happening.
Remember when you are dealing with EU directives ( such as EU that UK and Holland do take as basis of they claims on – 94/19/EC ) and related law you enter parallel universe of law. It is not English law, or Dutch law any more.
It is EU law.
As you know 75% or more of all UK and Dutch and German laws now on the books ( and many they are gold-plated by UK and Germans government nut not so much the Dutch ) come from EU ( ie as many just call it ” from Brussels ” ).
So now let us recap what this being based on EU law means.
The discrimination pillar that does govern all of EEA that UK as sovereign ( and Dutch depositor ) has used in legal argument it has made about depositor compensation would be considered regards the interest for loan to Icelandic TIF as well.
It can be intrepreted without must difficultly let alone that discrimination aspects, that UK Treasury are giving state aid to your FSCS fund by lending it this money. Then you turn around and make a loan not on same terms to Iceland own equivalent of FSCS.
( Do not forget that even though that Icelandic TIF fund did have in 1% of bank deposits or so, as required by EU directive, that is more money in it than UK FSCS fund had in it which was.. zero. Because UK FSCS does borrow it money on demand even though general idea is that banks are meant to pay for it them selves . )
So do not make wrong assuming that the interest rate of 5.5% being upheld when judge or arbitrator knowing the EU law reviews case.
That is not the same as saying that it would be easy for Icelandic state to get loan monies now on the markets.
Despite the repetitional downgrade that was begun by actions of Darling and Brown in October 2008 and since February 2009 by completely wrong negotiations of Red-Green government it is a fact that it will not be easy for Icelandic state to borrow more monies now.
I think that there are good reason that Slaughter and May did help in writing of the contracts to put in jurisdiction accepted as England and to annul all other jurisdiction form Iceland side ( but allow Uk and Dutch side to utliuzie other jurisdiction if they want to ) for a * reason *.
My post on this subject is about facts of IceSave case not general ability for Icelandic state to borrow money now. It is not just a commercial loan here it is about a loan that was given to us with out us agreeing to terms and then after fact making terms that are far to favorable to UK and Holland.
And by pushing back to get ” Ragnar Hall “* back in UK and Dutch favor in December law nullifying August amendments does just show the intent of this deal is to get as much profit for the UK and Holland as possible ( the ” Ragnar Hall ” issue does give easy profit of extra EUR 0.8-1.3 * billions * to UK and Holland if it is not amended, very * against * spirit of the IceSave ” deal ” as pushed in public relations at world by UK and Dutch -).
If you do have a compelling reason that justifies this I would very much like to hear it — as would many Iceland, and people watching this case around world.
+https://www.icenews.is/index.php/2010/01/07/the-emergence-of-icesave-empathy-for-iceland-in-uk-media/#comment-109441 Ragnar Hall issue explained.
Isn’t “interesting” how few crooks in public places can fool how many tax- and interest-payers…
So few question the reasonableness of borrowing in large numbers.
So few question the “god given necessity” of banks making money out of thin air and “selling” it at interest.
Why are national / sovereign / public debts in operation in the first place??? So that those in public places can benefit from those hard working, tax paying voters and interest paying bank customers.
It’s about time that a small country makes it more apparent and understandable than a big country with even bigger numbers.
GO FOR IT, ICELANDERS!
Sabine, Organiser
Forum for Stable Currencies, House of Lords / Commons
Publisher, http://www.NationaleSchulden.eu
[…] just posted the comment below at the Ice News website, which provides news about Iceland in English, commenting about the coming referendum on […]
I say “Three cheers for the brave Icelandic people who refuse to be impoverished by the demands of the crooks and fools running the British and Netherlands governments.” It is at best disingenuous to lay all of this on the nation of Iceland. If the British and Netherlands governments allowed these banks to operate in their territories, then their regulators are at fault for not noticing how thinly the guarantee fund was financed.
In the comment thread above, several statements have been made about the credit-worthiness of the United States government. Anyone who believe this is delusional. Anyone who thinks that US taxpayers will actually be able to pay the many trillions of dollars our own crooks and fools have obligated us for is also delusional (cf all the guarantees we’ve been handing out like candy to the crooks on Wall Street and in the big transnational banks).
Beware of anything you hear the US government saying about its finances. Tax receipts for governments — local, state, national — are plummeting. The feds are fiddling with their statitics just like they did in the old Soviet Union. Unemployment is at least twice what the government is reporting.
So if we ever actually pay our bloated debt and bank/finance system guarantees, it will only be thanks to a hyper-inflation where the price of a cup of coffee at my favorite local cafe has risen from US$1.00 to US$100 or even more. A lot of good your US dollars will do you then. I have thought that maybe they could be shredded and used for insulation, and I suppose they could be composted and used to grow vegetables.
Keep banging those pans, Icelanders. Make a noise loud enough to sound across the world.
Bob Waldrop, Oklahoma City, US of A
Leo said:
“I would not assume that the current trade surplus is any indicator for how Iceland will look economically in 5-10 years. If you hadn’t noticed, yóu’re going through a terrible recession, together with the rest of the world. Once that is over, figures will probably change dramatically. Not that it will necessarily mean that it becomes much easier, just that the 2008 or 2009 figures are probably very poor indicators of future performance”
——————————————
Considering that it very possibly could have been a record trade surplus in 2009 and considering that much of the trade is based on the volatile and susceptible marine produce, I assume that when you say the figures will change dramatically, they will change for the worse. If on the other hand they improve to an even slightly greater surplus, it would indeed be a remarkable feat, a remarkable string of surpluses.
Assuming Iceland can’t pay off its debts with container loads of IS Kronur and will have use foreign currency earned from trade surplus.
Any ideas on how a country with such a surplus ( Eur65m) can hope to pay off its loans, the current State debts, the already arranged State loans and on top of that the Icesave debt, something in the region of > Eur 10 or 12bn
@Leo. Yep. For a concise and well written ( :) )explanation of the Ragnar Hall issue, see:
https://www.icenews.is/index.php/2009/07/29/more-members-of-parliament-against-the-icesave-deal/#comment-87137
Funnily enough, I’d totally forgotten about it. It’s definitely something that, in the unlikely case that the referendum does say yes, will end up being overturned sometime in the next 7 years. Either that or we’ve all misinterpreted it somehow.
To Bromley86:
>>>>Ignoring reality for the moment, the way that it should work is that the TIF has super priority and is paid its claim ahead of everyone (well, except for the administrators).
Wish someone could just get the message across to our finance minister and the counterparts in UK/Netherlands. Would go long towards solving the problem.
To Leo:
>>>>And Fisy, Bjarni, how do you put into perspective that markets ask 8% of Iceland and only 4-5% from other countries for the same duration loans?
>>>>Why do you compare the Icelandic rate of 5.5% not to the 8% rate for the government bonds?
I have on purpose never become involved in the debate what would be the “correct” market rate for the interest on the Icesave debt. If I was a banker myself, and was being asked to loan Iceland money in the current climate, I would probably be demanding some ridiculous high rate because of the risk involved. On the other side, for Iceland with its crushing debt load, 5-6% is very high, and will lead to lot of difficulties within few years.
What I have been stating, is that rather than the interest rate itself, it is Iceland is being required, according to the contract, to pay high interest rate on the whole 4B Euros while we wait for Landsbanki bankruptcy payments to come through. In my view this should never have been accepted by the Icelandic negotiation team, is one of the reasons the current agreement has so much trouble getting acceptance in Iceland.
>>>>As I understand legislation, these assets will still make profits between now and when they are liquidated. And those profits are there for the Icelandic government to use to pay its (Landsbanki’s) debts.
This is just plain wrong, at the moment the recoveries so far, which amount to little over 1B Euros, are sitting in a account with Bank of England, collecting very little interest. Any interest on assets that is collected, will furthermore be managed by the Landsbanki bankruptcy proceedings, and distributed to its claimants, not the Icelandic government.
>>>>So even if it takes 5 years to dissolve Icesave and sell its assets, and 5.5% interest accumulates on that debt for Iceland, at the same time, interest will accumulate for those 5 years on the Landsbanki assets to be sold. So even that will not add an undue burden to Iceland to repay its debts.
This is just not based on the actual facts!
@Bromley86
You’re referring to the Ragnar Hall issue, aren’t you? I don’t fully understand it, but it seems to me that that might be the most valid point that Iceland can bring up in any future discussion with UK/NL.
And I am not saying that the government can claim the total revenue of the assets of Landsbanki, but I do believe that that revenue will go to reimbursing the stakeholders in the whole affair. And if the TIF has priority over other stakeholders, then it can claim the revenue as a means to pay off the UK/NL. Just like any other stakeholder can claim the revenue of those assets (if any revenue is left after TIF is done) for their claims and the interest on them.
@Knowless
I would not assume that the current trade surplus is any indicator for how Iceland will look economically in 5-10 years. If you hadn’t noticed, yóu’re going through a terrible recession, together with the rest of the world. Once that is over, figures will probably change dramatically. Not that it will necessarily mean that it becomes much easier, just that the 2008 or 2009 figures are probably very poor indicators of future performance.
With an accurate enough estimation of a trade surplus of Eur 65m for 2009, I would say that there is a reasonable mathematical rationality to claims that the Icesave debt on top of all other already acquired State debt and future essential State borrowing, is an unsustainable burden for the State to carry.
Apart from the acquisition of Euro and GBP printing presses, how else can anyone see the Iceland State sustaining the Icesave debt under the present Icesave terms or indeed even under more rational terms.
Ooops. Moral of the story, don’t use less than or greater than signs if you don’t want it to cut parts out :) .
Last sentence should have read “so that the recovery on the less than 20k euros (which would be assigned to the TIF) is the same as that on the greater than 20k.
>As I understand legislation, these assets will still make profits between now and when they are liquidated. And those profits are there for the Icelandic government to use to pay its (Landsbanki’s) debts.
It’s not quite that simple. Any moneys from the Landsbanki liquidation go into the pot for Landsbanki’s creditors.
Ignoring reality for the moment, the way that it should work is that the TIF has super priority and is paid its claim ahead of everyone (well, except for the administrators). But even then, any interest that the government incurred on a loan to fund the TIF could not reasonably be claimed.
Reality, at the moment, seems to be that the TIF does have super priotity but that it has to make a balancing payment to the UK/NL so that the recovery on the EUR 20k claim (which would be the UK/NL’s).
And as for the 5.5% interest bankrupting you while you wait for the recoveries from Landsbanki (which could amount to 90% apparently of the debt).
As I understand legislation, these assets will still make profits between now and when they are liquidated. And those profits are there for the Icelandic government to use to pay its (Landsbanki’s) debts.
So even if it takes 5 years to dissolve Icesave and sell its assets, and 5.5% interest accumulates on that debt for Iceland, at the same time, interest will accumulate for those 5 years on the Landsbanki assets to be sold. So even that will not add an undue burden to Iceland to repay its debts.
And to answer Fisy’s specific point about discrimination against Iceland for the 5.5% interest rate on that debt vs. the very low rate for the British deposit scheme. Any impartial judge will throw that lawsuit out in a heartbeat. In financial markets, its is vital that different interest rates can be charged for different risks.
Or to put it differently. I pay 4.5% interest on my mortgage. I have a colleague who pays 4.2% at the same bank for a similar mortgage. Are you suggesting I have a snowball’s chance in hell that I could sue the bank for discrimination due to the different interest rate?
@ Fisy
You have no idea how financial markets work, do you?
The US is extremely creditworthy in terms of repaying debt. Even if only for the reason that all its debt is in dollars, so they can control (through inflation) how much they actually need to pay. If you worry about anything in the US, its not a default. Its inflation. But also since the US has debts in dollars and revenue in dollars (obviously) there is no currency mismatch problem for them.
Iceland is in a very different position. One of the main reasons your debt is going up so fast is the fact that your currency devalued so much. Which is an issue that I see too little about to be honest. I don’t know what the economic expectations are exactly for the ISK, but I don’t find it entirely unlikely that the ISK will rebound a bit more in the coming years. And if the ISK goes back up in value, your debts in euro and pounds will effectively drop. Perhaps someone with more intimate knowledge about the Icelandic economy could comment on the expectations for the ISK in the coming years?
And with regards to the interest rate, I wonder why noone comments on the fact that the Icelandic government currently has to put bonds in the market at 8% interest. Why is there no outrage about that in Iceland?
And Fisy, Bjarni, how do you put into perspective that markets ask 8% of Iceland and only 4-5% from other countries for the same duration loans?
Why do you compare the Icelandic rate of 5.5% not to the 8% rate for the government bonds?
Why do you insist it has to be compared to the UK rate for their deposit scheme, even though it is completely different (much shorter duration of the loan, different institution responsible for paying it back), while the 5.5% can be directly compared to the 8%, as both are for the Icelandic government and for similar durations.
Fisy – You seem to be happy to grasp at any media ‘crust of comfort’ to support your cause.
Within a Guardian article, it states:
“The burden of Iceland’s debts on its taxpayers could be a fraction of previous estimates after it emerged that most of the bill could be paid from the sale of assets owned by one of the country’s failed banks.
Assets owned by Landsbanki, which collapsed in 2008, are valued at 90p in the £1 and could pay off most of the £3.4bn owed to Britain and the Netherlands, which compensated savers in the bank’s Icesave business.”
That’s good news – so what is the big problem – sell the assets – pay NL/UK, and loan the rest from whoever offers the best rate….
What’s wrong with that Fisy?
However, the latter part of the article states:
“ Debt markets, which have pushed up the cost of insuring Icelandic debt in recent days, added to Iceland’s pain after credit default swaps jumped 15 basis points to 489.9. This indicates that the financial markets believe there is a growing chance that the country could default on its borrowing.”
http://www.guardian.co.uk/business/2010/jan/07/iceland-president-warns-uk-government
Well that worries me Fisy, what say you?
Fisy writes:
“This IceSave settlement is about politics not market profits.
Other wise UK would be giving back interest to Icelandic estate of Landsbanki on all that money it has frozen in the London branch and subsidiary of Landsbanki.”
That isn’t how freezing operations work. Assets are managed as before and any profits or losses are posted against the frozen asset base. Certainly, the law in the UK says that any party that holds/freezes/delays any financial transaction or asset cannot become a beneficiary of that action. (The old chestnut used to be solicitors who transacted house purchases. They would accept the cheque from the buyer, bank it, and then mysteriously find a slight fault in the paperwork that held up completion by a day or so. The buyers were never too bothered by this, but by doing this repeatedly the solicitors could make a tidy profit on overnight deposits in Japan. That practice was stopped a long time ago.)
Fisy writes:
“Why add this Credit Default Swap premium ?”
Because that is precidely what the CDS level is – the additional payment needed to compensate a lender against the risk of default of a borrower. Or are you telling me that Iceland’s current track record of debt repayment is good? I would point to:
1. Partial mortgage strikes in Iceland.
2. A large number of car loan defaults and non-payment by indivdiual Icelanders.
3. The unredeemed ISK denominated bonds.
4. The continuing non-payment of interest payments by Icelandic bodies to international bond holders.
5. The failure of the Icelandic three banks to repay their debts resulting in the take-over of the banks by their creditors.
6. And of course the “hot topic” of the non-repayment of the deposits to British and Dutch savers in October 2008.
With such a track-record of non-payment its hardly surprising that Iceland’s CDS levels are currently indicating “junk” status.
And by the way, we do keep being told by Icelanders that the Icesave debt, which constitutes only 5% of Iceland’s external debt can’t be repaid (even with a 7 year grace period and a generous 5.5% interest rate). So what confidence does the rest of the world have that the remaining 95% of your external debt is going to be honoured?
Lest Icelanders not be aware, these people writing articles in the British newspapers are politically opposed to the ruling Labour Party, Brown and Darling. There articles are politically motivated which is no different to the Icelandic media that was controlled by the crony businessmen who benefitted from the out of control poorly regulated Icelandic Banks. Ask the man in the British High Street whether he should fund the Icelandic electorates lack of regulation of its own privatised banks or whether Icelanders should fund mistakes of their own elected government, and the answer clearly is the latter. Reality please Icelanders, if you make mistakes, stand up and take the medicine like a man and not a mouse. The British taxpayer is having to pay for the mistakes of its Government in terms of bank deregulation – that is the price of being a democracy, and so should Icelanders take responsibility for their own national policy mistakes on privatised national bank regulation. And by the way Icelanders, what is the big problem with a 5.5% interest rate? Have you not worked out that your Government is effectively borrowing money from the UK at this percentage and then lending it to you through the Central Bank at 10% or higher by the time your New Landsbanksi lends it to you. Your Government is getting a bargain deal. If you need a referendum it should be on the profiteering of your Central Bank etc. Reduce that interest rate differential and the burden on you individual Icelanders will be much less. Don’t allow yourselves to be conned by Grimsson’s smokescreen – all he is doing is trying to protect the interests of the businessmen who created your banking mess.
Mike UK Nordic Analyst does write :
>Interest rates for solvent (if struggling countries) are in the region of 1%. Add on the 4.5% CDS premium and there you go 5.5%
Um, what ? Why add this Credit Default Swap premium ?
There is a kind of perversityness that it is the 5.5% interest which is on paying back in EUROS ( and GBP ) that will cause the credit rating of Icelandic state to be bad without caps on GDP growth in IceSave ” deal “.
It becomes a self fulfilling downwardes spiral.
This is a loan to a government guarantee fund with a state guarantee
It’s not being spent on some speculative investment to some company.
The ” Ragnar Hall ” issue is the most obvious profit center for UK and Dutch. But why not give the same LIBOR 12 month rate plus some basis points to Icelandic TIF as UK does give to its own Financial Services Compensation Scheme ( FCSC) fund ( and Dutch fund that does get similiar rate ) ?
This IceSave settlement is about politics not market profits.
Other wise UK would be giving back interest to Icelandic estate of Landsbanki on all that money it has frozen in the London branch and subsidiary of Landsbanki.
What makes UK and Dutch negotiators ( despite both governents are soon to be gone in elections ) and so prime ministers and finance ministers look so bad is this..
Icelandic parliament in August law did * accept * the 5.5% interest!! As long as capped against GDP growth year on year it was agreed to.
And out of sheer greed ( Ragnar Hall issue ) the UK and Dutch did come back and refuse the amendements !
The UK is lending to its own fund at 1.5% ( LIBOR 12 month will go up for GBP high soon enough because the UK is in bad shape thanks to the Brown years of bailout and bust )
Now with referendum on the December law its way, time is short for any kind of renegotiation and UK and Dutch negotiators to realize that they are going to lose the 5.5% interest we did agree to pay in August.
A No referendum means the end of Red-Green government and your nice jelly fish government that has bent over to all your demands despite our parliament fighting for Iceland’s debt sustainibility and public opposition.
A bird in the hand.. you rapacious UK and Dutch governments..
Spot on Leo. 3 years and then it’s renewed at market rates (no mention of likely term, presumably they’re waiting until they know more).
Leo did write :
>First of all, the US rate is the US government, an AAA rated country, and to add, the country with the most liquid debt of all.
>And Iceland is nowhere are creditworthy as the US.
If you look at long term bonds lending I would say that Iceland is.
Despite its short-mid term debt burden Iceland it is in far better shape than US mid-long term+.
Not because Iceland is in such good shape but because the US is in such bad shape after the trillions that have been squandered and the debts of the medicare for baby boomers etc.
>[ US] 10 year US treasury bond is 4.61% today. A 30 year bond is 4.70%. With Iceland you’re talking about a 15 year bond.
Last financial bubble right now getting bigger is mid-long term US government bond market.
You and Mike UK Nordic analyst do know it despite you posts to contrary.
So I do have to ask you a serious question — are * you * serious?
The UK is lending to its own fund at 1.5% ( LIBOR 12 month will go up for GBP high soon enough because the UK is in bad shape+ thanks to the Brown years of bailout and bust )..
..but whole point for Iceland IceSave loan is that it is the first years of interest that matter most to us given the interest rate — 5.5% !! Why in gods name would we be expected to pay this premium in first years ?
So if we did have the same deal based on rising LIBOR 12 months as UK FSCS does get then sure there is a risk it goes up to 5.5% but whole point is that
So what exactly do you think a judge is going to rule in matter of discrimination of this between your fund and ours ?
When of course that is one of the big matters regarding UK and Holland objections to our own emergency law — that is discrimiations under EU/EEA pillars ( even though Ireland did it first September in its jurisdiction within EU ) still that is one UK and Hollands main legal arguments.
And that is one of the several reasons ( the Ragnar Hall issue being the large elephant in the room that Uk and Dutch governments want ignored ) that UK and Dutch fear the Iceland ” deal ” going to court.
This idea that IceSave loan is some how differnt from the loans that UK Treasury is making to its own FSCS fund is a falsehood of its own pushed by UK propogandist trying to cover for UK negotiators caught with they pants down by the facts.
The more the UK and Holland do play this rapacious ” deal ” the more the world wakes up to just how bad the deal is trying to be rammed down Icelandic tax payer throats.
You should accept the August law amendments in whole except.
I have no doubts that there can be negotiation accepted about the 2024 renegotiation to make you negotiators all warm and fuzzy that there is a more specific set of steps then about what happens.
But for the gods sakes do you * really * want to see this matter in court.
An impartial third party will not take kindly to the ” deal ” terms you have tried to push on us again and again.
+http://www.telegraph.co.uk/finance/economics/4125947/Willem-Buiter-warns-of-massive-dollar-collapse.html
For the sale of being pedantic but right (how annoying is that as a personal characteristic?) …
Giova Bocca writes:
“In the world of today, as Mike coyly neglects to note, U.S. prime rate is 0% and Britain, with the aid of the Icesave billions of interest-free money in its coffers, is struggling to hold to a policy rate of one quarter of one percent.”
Oh! Oh! You’re not looking at the right numbers Giova. The Icesave deal will stretch for at least 10 years but you are quoting “overnight” deposit rates. To see current medium dated rates look at these two sites (one for the US, the other for the UK).
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml
http://markets.ft.com/markets/bonds.asp
You will see that 10 year feds are going for just under 4% and UK gilts at a touch over 4%.
Don’t quote the wrong numbers pleaasssee!
I don’t know about the Ragnar Hall issue enough to be really sure what to do with it, but at first impression, Iceland does have a point that first reimbursement should go to the TIF until all 20k for all is reimbursed, then to be used for other reimbursements. But I am not sure some other laws on how bankrup banks/companies are dealt with don’t interfere with that.
As for the interest rate, are you serious? First of all, the US rate is the US government, an AAA rated country, and to add, the country with the most liquid debt of all. Price of bonds is dependent on how risky they are and how ‘liquid’ they are. A bond that is more liquid (i.e. easier to sell is cheaper). Secondly, the rate you quote is a very shortrun loan. Longerterm US treasuries carry a much higher rate. The rate for a 10 year US treasury bond is 4.61% today. A 30 year bond is 4.70%. With Iceland you’re talking about a 15 year bond. And Iceland is nowhere are creditworthy as the US.
And the same goes for the comparison with the UK deposit guarantee scheme. The UK scheme is far more creditworthy. And I have a sneaking suspicion that the duration of the loan to the UK scheme is a lot shorter as well. Finally, the creditworthyness in this case is something that the UK government really controls. So they decide if the scheme goes bankrupt or not. That makes it a very good risk. With Iceland/the Icelandic scheme, the UK cannot control if it goes bankrupt or not. And therefore a much worse risk.
To Bromley86:
>>>>Or it was recognised and, as Fisy says, the UK/NL saw a way to secure more money.
My personal theory is the second option. It is generally considered now in Iceland, that the Icelandic negotiation committee was completely incompetent (except maybe for the government that says they worked very “hard”). In my view the UK/Dutch teams knew exactly what they were doing, and the Icelandic one simply never did the computations or realized the implications.
Now, on the other hand, it can be argued that this issue works seriously against the UK/Dutch own interests. Unless the Ragnar Hall amendment is reinstated fully, it is very likely that the Icesave guarantee will NOT be accepted in the referendum.
If the referendum fails, it is very unclear what will happen politically in Iceland afterwards. The current government, is considered by most here to be completely in the UK/Dutch corner, always making arguments on their behalf and agreeing with everything without thinking it through.
However it ends up playing out, it is very likely that the next negotiation team will take much more
‘hardline’ approach.
I think we’re all agreed on the Ragnar Hall issue. In an ideal world it wouldn’t be an issue at all.
However, one of three things seemed to have happened. Possibly it was simply missed by one or both teams. Or it was recognised and, as Fisy says, the UK/NL saw a way to secure more money. Or it was recognised and seen by the UK/NL as a way to counter potential changes in Icelandic law.
Not sure about that last one. That and the second could be explained by the fact that the negotiations were hostile (i.e. Iceland would not accept that the state guarantee was not on the table).
Bjarni wrote :
>At the same time, I have not seen anyone on the other side (UK/Netherlands) offering any real argument why the Ragnar Hall amendment shouldn’t be kept in as it was originally passed August 2009. This the reason I think there is indeed a real opportunity to renegotiate a deal relatively quickly that everyone really would find acceptable and would pass easily through the parliament here.
As all know I am less charitible than Bjarni is
I think there are 1.3B reasons+ why UK and Holland want it kept in.
+ie the extra Euro 1.3Bn it will bring in for UK and Holland governments on the IceSave ” deal “.
On Jan 8, 2010, Giova Bocca said:
>Meanwhile, while Britain has the Icesave money yet in Britain, being used by Brits, being repaid by them, to Britain, not Iceland, Britain, in its recently set-back dodge, attempted to stick Iceland with a 5.5% interest rate, which Mike defines as reasonable for averaging to the last 20 years, years of high interest, which are past and not of the world of today. In the world of today, as Mike coyly neglects to note, U.S. prime rate is 0% and Britain, with the aid of the Icesave billions of interest-free money in its coffers, is struggling to hold to a policy rate of one quarter of one percent.
Right. As I say in this longer post thread about what might happen when this case go in front of impartial 3rd party ( i.e. court )
>i) liability of our fund ( TIF ) is strictly limited to the minimum amount EUR 20,887 per depositor (GBP 16,827.99) i.e. Ragnar Hall issue would definately be enforced correctly .
>ii) that 5.5% interest is too much as it is more than the rate that a loan was given to UK’s Financial Services Compensation Scheme for same reasons+.
+http://www.fscs.org.uk/industry/funding/ i.e. the UK Financial Services Compensation Scheme ( FCSC) like Icelandic TIF does not have funds sufficient for its obligations either so it also has been given a loan by UK Treasury at 12 month LIBOR for GBP plus 30 additional basic points, i.e. for now that is just over 1.5 percent interest.
https://www.icenews.is/index.php/2010/01/06/iceland-president’s-icesave-decision-drawing-harsh-international-response/#comment-109451
Giova Bocca:
You commit the typical naive investor’s mistake – if I can chose my timing then I will make a fortune. It’s like saying if I know the winner of a horse race after it is over then I would have made a fortune betting on it beforehand – quite true, and quite useless. What you need to do is work out the probabilistic “expectation” that a given result will occur and work from there. Use that yardstick and you can’t go far wrong.
And I beg to differ on the interest rate thing. Look here at this chart:
http://www.propertyinvestmentproject.co.uk/property-statistics/interestrates.php
It shows the Bank of England base rate. It doesn’t really matter about the actual interest rate or country. All show similar numbers and trends. You’ll see that in this period we have had very low interest rates in the region of 4-6%. The drop to 0% is not a true interest rate since it is a desperate move to stimulate the economy (and it will be short lived – rates will rise). So again my statement stands: in a period of low interest rates the typical rate in the UK has been 4-6%. 5.5% is not outrageous or oppressive (UK house buyers, businesses etc have faced the number year in year out).
As for Landsbanki and Kaupthing – as I’ve said many times before these banks were dying and then dead sometime around 2006-7. The move to take deposits was a desperate one designed to fill the holes appearing in the balance sheets. Go and look at the Accounts of the banks and analyse them. It’s simple. The actions of the UK authorities had absolutely nothing to do with their faiure – when Glitnir went down then with the cross-holdings the other two were doomed.
Finally, you make my point for me. Interest rates for solvent (if struggling countries) are in the region of 1%. Add on the 4.5% CDS premium and there you go 5.5%. If the Icelanders delay any further then they will face a rate of 6%, 7%,8% or more.
CORRECTION:
The total for option a) was missing the 0.5 in guarantee payments. The relevant paragraphs should therefore have been as follows:
This gives total guarantee payments with interest by the Icelandic government as 2.2B Euros. The FSCS/DNB will receive further approx. 7.0B Euros (3.5B from TIF and 3.5B directly from LBI) giving the grand total of 9.2B Euros payments to FSCS/DNB.
…
The difference between the two options is therefore 9.2-7.9 = 1.3B Euros. It can be easily argued, that these extra payments should never have been included anyway, according to all standard conventions in bankruptcy proceedings.
One thing that has not been discussed much yet, is what is the real financial impact of the Ragnar Hall issue.
Basically, there are three main priority claimants to the bankruptcy proceedings of the old Landsbanki (LBI): the Icelandic TIF, the UK FSCS, and the Dutch DNB. Any money that TIF will collect, will furthermore be paid toward its “debt” with FSCS and DNB, so in the end all the money collected from old Landsbanki will end there.
A detailed reports are published at regular intervals by the winding-up board of LBI. Here is the newest report:
http://lbi.is/Uploads/document/LBI_creditors_meeting_presentation_031209.pdf
According to the report, we have:
Total assets: 819B ISK, 4.5B Euros, 4.1B GBP
Bond from NBI: 345B ISK, 1.9B Euros, 1.7B GBP
Total w/NBI: 1164B ISK, 6.4B Euros, 5.9B GBP
Against this we have (Exch. rate based on cutoff date 22.4.2009):
Total liabilities: 3427B ISK, 20.2B Euros, 17.9B GBP
Total deposits: 1319B ISK, 7.8B Euros, 6.9B GBP
According to this the recovery rate is currently expected to be approx. 88% for Icesave (but only 38% for the total liabilities). For simplicity sake I am assuming that all deposits are Icesave, although this is probably not 100% accurate.
As has been covered before, the total Icesave guarantee by Iceland to UK/Netherlands is approximately 4B Euros. Assuming that the 88% recovery rate is indeed correct, we can now look at what affect it has on the guarantee payments by the Icelandic government.
a) If the current agreement is passed and the Ragnar Hall issue is not taken into account, TIF will receive 3.5B Euros from LBI, so the guarantee by the Icelandic government will be 0.5 Euros. But thats not all of it, during the first 7 years, the 4.0B debt will accrue further 1.3B Euros in interest, and during the next 8 years, further 0.4B interest will have to be paid.
This gives total guarantee payments with interest by the Icelandic government as 1.7B Euros. The FSCS/DNB will receive further approx. 7.0B Euros (3.5B from TIF and 3.5B directly from LBI) giving the grand total of 8.7B Euros payments to FSCS/DNB.
b) If the Ragnar Hall issue is taken fully into account, each claim will have to be treated as one. TIF will then receive the full 4.0B Euros from LBI, so the guarantee by the Icelandic government will be 0.0 Euros. But furthermore, as the payments from LBI to TIF will now be paid out twice as fast, the accrued interest for the guarantee will also be much lower. During the first 7 years, the 4.0B debt will now accrue about 0.7B Euros in interest, and during the next 8 years, further 0.2B interest will have to be paid.
This gives total guarantee payments with interest by the Icelandic government as 0.9B Euros. The FSCS/DNB will receive further approx. 7.0B (4.0B from TIF and 3.0B directly from LBI) giving the grand total of 7.9B Euros to FSCS/DNB.
The difference between the two options is therefore 8.7-7.9 = 0.8B Euros. It can be easily argued, that these extra payments should never have been included anyway, according to all standard conventions in bankruptcy proceedings.
You will notice that the payment of 7.9B is approximately the same as the total deposits at LBI 7.8B, which means that ALL deposits can be covered by those payments.
This suggest another solution, which unfortunately was not accepted. That is, UK/Netherlands simply take over LBI plus receiving the 0.9B Euros in interest from Icelandic government, and use its bankruptcy proceeds to cover ALL its own guarantee payments. Problem solved!
To follow up the discussion, I am not sure people outside Iceland realize how big role the the supreme court lawyer Ragnar Hall played during last year during the Icesave debate in Iceland.
When the first laws were being debated in Althingi last summer, the government seemed to have the upper hand through their majority, until Ragnar Hall wrote his now famous article in Morgunbladid, where he pointed out that the computations used in the agreement simply did not adhere to the standard legal practice bankruptcy claims are dealt with (a single claim CANNOT be broken into two or more).
After this article, even the government MP’s realized that the original agreement was hopeless and had to be amended. This lead to the negotations throughout the summer and the laws there were subsequently passed August 2009, authorizing the Icesave guarantee by the government.
During the second round this fall, Ragnar Hall also played a major role, when he declared that the changes in the new agreement had rendered the original amendments on what is now named the “Ragnar Hall” issue worthless.
This declaration was one of the catalysts for the strong opposition to the new laws, that finally led to the President refusing to sign the laws January 5th and send it to referendum.
If the Ragnar Hall amendment would be put back in the original form or with minor changes, and this would be “confirmed” publicly by Ragnar Hall himself, it would go a long way to pacify the population in Iceland and make it possible for the new laws to sail through. There are few other amendments also, but this is by far the most important one.
To Bromley86:
>>>>Come on Bjarni, don’t get all politician on us :)
To DD:
>>>>It seems that all Bjarni and Fisy are getting on us are facts. Renegotiation not writhing off.
Of course “renegotiation” is not the same as “writing off” debt. But as I have stated before, of the several amendments passed with the August 2009 laws, the 2024 issue was probably the easiest one to deal with in the second round. I have seen very few demands in Iceland for this amendment clause to stay unchanged, as the other amendments were simply much more important to people here.
At the same time, I have not seen anyone on the other side (UK/Netherlands) offering any real argument why the Ragnar Hall amendment shouldn’t be kept in as it was originally passed August 2009. This the reason I think there is indeed a real opportunity to renegotiate a deal relatively quickly that everyone really would find acceptable and would pass easily through the parliament here.
Excuse me DD, but how is the removal of the state guarantee after 2024 not a fact? Renegotiation with with the TIF in those circumstances is an idiotic thing to put forward as a possibility.
If the TIF was going to be able to cover the guarantee we wouldn’t be here now. There’s been nothing to suggest that 15 years (including interest) will improve the likelyhood of that.
@ Chris
What is important now is that Iceland accepts its obligations. That stabilizes the financial markets and helps Iceland to recover in the short run. And I bet that if in 2024, we find out that Iceland really can’t pay the money back, you can expect a much more relaxed reaction. The UK and Holland are not monsters, I can’t believe they would want to bankrupt you. But at the current time, they see it as important that Iceland fully commits to paying its obligations. And if in the long run, it really turns out that its too much for Iceland to pay, I wouldn’t worry so much about it, you’ll get a better deal then.
>>> Bromley86 said:
Come on Bjarni, don’t get all politician on us :) <<<
It seems that all Bjarni and Fisy are getting on us are facts. Renegotiation not writhing off.
Your personal perception is not a fact. :) So maybe you and Leo can finally stop misleading the readers presenting your personal feelings as facts. :)
Leo, the point of my question was not to get an exact calculation as that is simply impossible. But as you see the numbers, in this case so much left, in that case so much left. The point is that the numbers mentioned are hughe at 2024. It does not matter how much recovery there is from Iceave. Iceland will be sitting in 2024 with a hughe debt and maybe even higher debt as they started with.
Will you ever sign an agreement like that when you buy a house or so? And in this case Iceland did not even buy something, there has been criminal activity in the country and Iceland has to pay for that.
As long as there is a possibility that Iceland really can pay it they will accept it. That Iceland is now honest and does not want to sign a unrealistic agreement which might become a never ending story can not be blamed. Why sign now and say later, sorry we can not pay, what is the use of that. Brown and Bos know this, but they play just a political game over the back of Iceland.
lol UK should not get a dime for the way they behave. If this were France or Germany the tone would have been sooo different. But because Iceland is a small nation, the true colonial face shows it´s ugly face again.
But just continue down this road, you make a fool of yourself and other countries are starting to question your act.
Mike (UK Nordic analyst) said:
“As for your friends, besides the Faroes, none of the other Nordics are prepared to go near you – they have issues with you still (assets being pledged to back up loans – and then the assets being sold!).”
————————————-
“Still have issues with you”
Who is/are the “you”?
You are implying that one or more of the other Nordic States have issues with the Iceland State acting dishonorably.
or is it just plain old xenophobia?
LEO:
“The UK government (and I think they were 100% correct in that assumption) assumed that once word got out that Iceland would not pay for Icesave deposits in the UK, an immediate bankrun would start on Kaupting. To prevent a collapse of Kaupting and the disappearance of Kaupting assets to Iceland, they seized the bank. It is the only logical thing to do.”
The were a lot of things that happened before Kaupting was shut down. Multiple promises of additional capital injections which failed to materialise and a bank run that started a week before the UK government acted, for instance.
On Jan 7, 2010, NH said :
>In my opinion the main point has to be to not let this whole affair get in the way of Iceland joining the EU as quickly as possible.
The Icelandic people no longer have interest in joining the EU because of the way EU commission has handled whole IceSave affair ( the kangeroo court ” binding arbitration ” attempt of November 2008 ), and because the EU is moving away from Icelanders in its ways. The main reasons that joining the EU is a bad idea is :
i ) that we will have to put in 100% of EU regulations (Directives ) from what we have now of 10% under EFTA with all the costs and restrictions of that,
ii ) we will have less than 0.4% influence and we will not get the EURO any time soon because our state debt is too high for next years to meet the criteria ( no way we can join ERM-2 in next years even if wanted to ).
Unilateral adoption of EURO is more likely than that. Or a krona backed by oil and gas income from Drekki.
>at the moment the Iceland desperatly needs to abandon its aloofness and delusions of independence and start playing ball with the rest of us.
The ” rest of us ” would be not just happen to be certain EU member states would it?
The world is a big place and we will trade with who we like.
We will not joing the EU and have the EU commission tell us who we can trade with and how ( which is the way the EU customs union works ).
As to Chinese, In many ways the Chinese attitude to influence is more agreeable to an independent people than the EU attitude because the Chinese abroad do use direct investment as their tool of influence.
EU does work by the largest countrys in the EU voting under qualified majority voting to decide. Of this Iceland will have 0.4% influence in ( decision making is almost entirely based on population of member states now under Lisbon Treaty ).
Yes there has been much subsidy and giving of money in form of grants to individuals ( including scandals currently hidden regarding EU grants given to members of our Social Democrats ) but the era of huge transfer payments from Germany, Holland, etc. over to other member states is over.
Germans of the new generations are soon going to decide exactly why they have to pay all this money for other member states without getting much back at all.
>The other option for Iceland is to get raped and pillaged by Russia, china, or whatever other unsavoury regime likes the look of its abundant natural resources
Better to get money from Chinese direct investment where we stay sovereign than to get it regulated and controlled by EU commission as it reaches for ever more control over EU member states resources.
Don’t forget that the EC never had any mandate to take control offisheries of its member states in the treaties either but it did anyway. That is the way the EU works. That is the way the EU commission does things ( as rubber stampted by EU parliament ).
Both EU and China are opening their embassasies here, while the US doesn’t even appoint and ambassador again yet :
https://www.icenews.is/index.php/2009/08/26/european-union-to-open-an-embassy-in-iceland/#comment-91062
https://www.icenews.is/index.php/2010/01/06/iceland-and-uk-ministers-to-hold-meeting-this-evening/#comment-109132 ( Chinese embassy being expanded )
http://is.china-embassy.org/eng/
Terry :
>“It merely said it would be renegotiated at that time. Nothing about any writing off”.
>
>Renegotiated…. what does that mean – the flexibility of telling your creditors to ‘p*ss off at a later date. Come on Fisy that’s whooly talk!
Bjarni has posted about this :
https://www.icenews.is/index.php/2010/01/07/the-emergence-of-icesave-empathy-for-iceland-in-uk-media/#comment-109337
As Bjarni says above:
” As been stated here multiple times, if the [ renegotation or as it says in the law ” timely discussions on how to handle the matter and its impact ” of not having paid by 2024 ] had been the ONLY thing UK/Netherlands wanted to change in the August 2009 laws, it would have been relatively easy to negotiate that and the new laws would not have faced this massive opposition in Iceland. ”
I think that says it all.
It needs be noted that Mike the Nordic Analyst went out of his depths in his tirade in support of Brit “generosity” in offering a repayment schedule that ignores that Icesave and KSF in Britain are alive and well and living in receivership, which means the loans they had made before being destroyed were solid enough their borrowers are repaying, with the repayment money going into the British Exchequer, where it lies available to the Brit gov’t as INTEREST-FREE loan money. Meanwhile, while Britain has the Icesave money yet in Britain, being used by Brits, being repaid by them, to Britain, not Iceland, Britain, in its recently set-back dodge, attempted to stick Iceland with a 5.5% interest rate, which Mike defines as reasonable for averaging to the last 20 years, years of high interest, which are past and not of the world of today. In the world of today, as Mike coyly neglects to note, U.S. prime rate is 0% and Britain, with the aid of the Icesave billions of interest-free money in its coffers, is struggling to hold to a policy rate of one quarter of one percent.
Had the deal the Brits and Ducks attempted to push gone, Britain could have loaned Icesave Britain’s billions that it holds to Iceland at 5.5%, making the Icelanders rent their banks’ own money.
They could have pulled this off for one reason, primarily: Because Icelanders are so busy hating their bankers they don’t recognise they were screwed right along with the rest of them, and they won’t let them speak, let alone listen to anything they may try to say, for which they are letting themselves be led into a woods by the foxes.
Come on Bjarni, don’t get all politician on us :) . What are the odds of Iceland renegotiating repayment when they can just as easily say, “no state guarantee anymore”?
So, sure, the TIF would still be liable, but without the Icelandic state behind them that’s worthless.
From Article 1:
“The guarantee covers the principal amount . . . together with the interest . . . and shall apply until the 5th June 2024.”
http://www.iceland.org/media/info/010909_Act_on_state_guarantee.pdf
I haven’t checked for a while Fisy. Does this mean you’ve finally commented on the High Court decision that found against Kaupthing?
I’m British and I think Iceland should be given a break.
“GBP 3.5 billion – but with only around 300,000 people living in Iceland, that equates to about GBP 40,000 per family.”
This is a ridiculous sum of money to expect the average Icelandic taxpayer to foot. I agree that a debt is a debt but this was a banks fault (our banks in London were just as foolish with savers money as the recession has highlighted!). Ordinary Icelandic people shouldn’t be made to suffer because of this. Everyone I have personally spoken to about this agrees that this is too much money to expect Iceland to pay. I think that Iceland should be let off the hook on this one as a gesture of goodwill between our two countries.
Fishy is correct:
>>>>”b) said that any debt outstanding after 2024 should be written off.”
This is falsehood. It merely said it would be renegotiated at that time. Nothing about any writing off.
In the first Icesave guarantee laws 96/2009, article 3. there is the following clause:
“Nú virðist á einhverjum tíma stefna í að lánsfjárhæðin ásamt vöxtum verði ekki að fullu greidd í lok lánstímans vegna hinna efnahagslegu viðmiða og skulu aðilar lánasamninganna þá tímanlega eiga með sér viðræður um meðferð málsins og áhrif þess á samningana og skuldbindingar Tryggingarsjóðs innstæðueigenda og fjárfesta.”
Basically it says in English:
“Now it seems at some point that the full debt amount with interest will not be fully paid at the end of the loan period [2024] due to the economic benchmarks and shall the parties to the loan agreements then have timely discussions on how to handle the matter and its impact on the agreements and the obligations of TIF.”
It should be very clear from this law text, that this does NOT mean any outstanding debt should be “written off”.
In my opinion the main point has to be to not let this whole affair get in the way of Iceland joining the EU as quickly as possible. The other option for Iceland is to get raped and pillaged by Russia, china, or whatever other unsavoury regime likes the look of its abundant natural resources. Its a total no-brainer. Iceland is just a small island with 300,000 people in the middle of the atlantic. The americans have gone, the cold war is over, and the country is basically defenceless. We have all got ourselves into this (financial) mess together and we will all get out of it together – probably by inflating our way out of the debt or writing it all off and starting again. It doesn’t really matter how we do it, but at the moment the Iceland desperatly needs to abandon its aloofness and delusions of independence and start playing ball with the rest of us. Thats the way I see it.
Fisy
you said.
“It merely said it would be renegotiated at that time. Nothing about any writing off”.
Renegotiated…. what does that mean – the flexibility of telling your creditors to ‘p*ss off at a later date. Come on Fisy that’s whooly talk!
https://www.icenews.is/index.php/2009/07/29/more-members-of-parliament-against-the-icesave-deal/#comment-88907
Let’s have a binding contract.
To Leo:
>>>>If we’re lucky, Iceland can recover 90% of the money from the assets, use that to pay most of the debt and only face 400 million euro in debt to be paid by Icelandic tax payers. In a bad scenario, recovery is only 50% and Iceland actually needs to come up with 2 billion.
This is simply wrong, as Iceland will have to pay the interest also on the whole 4B Euros, while the loan is paid down.
If the recovery is 90%, the loan payments are indeed 400M Euros, while the interest payments are 1275M Euros for the first 7 years and 420M Euros for the last 8 years. This gives therefore total guarantee payments of 2100M Euros by the Icelandic government during the 15 year period or 7000 Euros per person (21000 Euros per 3-person family).
If the recovery is 50%, the loan payments are 2000M Euros, while the interest payments are 1600M Euros for the first 7 years and 900M Euros for the last 8 years. This gives total guarantee payments of 4500M Euros during the 15 year period or 15000 Euros per person (45000 Euros per 3-person family).
The real problem is therefore clearly the interest payments, not the original payments for Icesave!
To Mike Smith:
>>>>I understand that the original legislation re payment of the Icesave money to Britain and the Netherlands:-
a) restricted the amount of repayment to 6% maximum of Icelandic GDP in any one year;
b) said that any debt outstanding after 2024 should be written off.
I expect that it’s condition (b) that the British and Dutch governments don’t like.
As been stated here multiple times, if the condition (b) had been the ONLY thing UK/Netherlands wanted to change in the August 2009 laws, it would have been relatively easy to negotiate that and the new laws would not have faced this massive opposition in Iceland.
Instead the UK/Netherlands decided to change ALSO the other amendments/conditions (for example, the Ragnar Hall issue) which were much more important to the Icelandic population. By forcing these additional changes to the agreement they made it much harder for the new laws to pass through Althingi. If it does not pass through the referendum because of this, they can only really blame themselves.
Why not limit the changes to what UK/Netherlands have repeatedly stated publicly was so important to them, and leave the rest alone?
@ Fisy
about the writing off, I don’t know the exact text of the deal, but it was my understanding that Iceland wanted to be rid of the obligation after 2024. But if you are sure it was just to renegotiate, I stand corrected.
Based on that, I might see some room for further negotiations. But unfortunately, its not up to me :-)
@Fisy
from what I understood, the UK seized Kaupting when Iceland made ambiguous statements about honouring its obligations under the deposit guarantee scheme.
The UK government (and I think they were 100% correct in that assumption) assumed that once word got out that Iceland would not pay for Icesave deposits in the UK, an immediate bankrun would start on Kaupting. To prevent a collapse of Kaupting and the disappearance of Kaupting assets to Iceland, they seized the bank. It is the only logical thing to do.
And about panic and Lehmann. That was different. Lehmann was a not a bank funded by deposits. It was funded on the capital market. And yes it did cause a panic on the capital market.
However, what I referred to and what could have happened would have been a huge bankrun on deposits. That will kill any bank in the world if it happens to them. You go look at any bank, even AAA rated banks, and ask yourself, if tomorrow all of its customers come and demand their money back, will this bank go bankrupt? And the answer is yes, it will go bankrupt. Governments and Central banks will go to extreme lengths to prevent bankruns from happening for that very reason. If countries are allowed to avoid the obligations of their deposit guarantee scheme, you risk undermining the trust of people in the safety of their deposits in the banks, and thus you undermine the stability of the whole financial system.
And I am aware of the predicament that the banks were in in 2008, which is exactly why I understand why the UK government acted the way it did to ensure stability. And why I consider it to be imperative that Iceland is held to honour its obligations.
@Chris
you can’t calculate that amount without making an assumption about how much money is recovered from the assets of the failed banks. If we’re lucky, Iceland can recover 90% of the money from the assets, use that to pay most of the debt and only face 400 million euro in debt to be paid by Icelandic tax payers. In a bad scenario, recovery is only 50% and Iceland actually needs to come up with 2 billion.
>b) said that any debt outstanding after 2024 should be written off.
This is falsehood.
It merely said it would be renegotiated at that time. Nothing about any writing off.
Some more hardline MPs may have pushed for write off clause but that is not what was passed in the end and passed in the August law accepting the state guarantee of IceSave.
It was renegotiate.
Leo did write :
>If I were the UK government, I would start kicking out banks from any country that I would not trust 100% to honour its obligations, and EU/EEA regulations be damned.
This should be the right of each country. And it shows that misplaced trust in EU harmoization here that was done so poorly by EU commission burecrats.
To have foreign owners of banks in as a subsidiary in which case it is a fully regulated bank is the only way.
Of course re this ‘ kicking out banks ‘ or rather kicking when down and seizing, Brown and Darling did this with Kaupthing Singer and Friedlander. It was a fully regulated UK bank owned mainly by Icelanders.
That did not stop them taking the bank and its Edge deposits for no good reason.
>2. It could even lead directly to a collapse of confidence in the international banking sector as people pull deposits from foreign banks.
Where have you been ? Did you just walk out of a suspended animation tank where you were frozen in 2005 ?
When Lehmans fell that already happen not only in US but within EU too.
And then when Ireland did guarantee its deposits unlimited for its own owned banks for 2 years and the foreign ones to EUR 100,000 all hell did break lose.
“Britain was ‘three hours from going bust’
.. “on Friday, 10 October the [ UK ] was ‘very close’ to a complete banking collapse after ‘major depositors’ attempted to withdraw their money en masse.” :
https://www.icenews.is/index.php/2010/01/05/icesave-agreement-rejected-by-icelandic-president/#comment-108749
https://www.icenews.is/index.php/2009/12/19/majority-in-iceland-want-to-reject-icesave-bill/#comment-106692
Mike:
You as an analyst, please calculate for me the following:
Which amount would remain after 2024 including interest in the case of:
Iceland will have a steady economic growth of 3 % each year from now on based on the agreement the Icelandic people will vote for.
Looking forward to your answer.
@Leo:
I fully agree with you that the two conditions you remarked on from the earlier draft are ridiculous. Nobody in their right mind would lend money on terms that allow the creditor to stall payments until the loan just vanishes. That just not very reasonable of my government but it doesn’t surprise me because politicians by and large are idiots.
That still does not mean that we refused to pay our dues. Just that we’ve got really stupid politicians over here which is the reason for why the President gave the choice over to the people. It was more a slap at our government for having handled the whole debacle very poorly as well as an attempt to create some unity within Iceland vis a vis the issue.
Mike:
It seems to me that you’re calling us rapacious and unreasonable while maintaining a similar stance. I think that attitude is what is now propagating this sad affair and I mean this as a double edged sword pointing my own way as well.
>they have issues with you still (assets being pledged to back up loans – and then the assets being sold!).
Sounds interesting :) .
Interesting point about demanding payment now. If the UK/NL wanted to screw Iceland over and look (relatively) good in the process, they could agree to start the court process now with the understanding that they would allow Iceland to secure it’s financing elsewhere in the event that the UK/NL/EU won.
No Nordic loans for the duration. In theory no IMF loans either. And if it goes against the UK/NL, the effect on their finances would be minimal.
“but without any kind of demand that the rest of the debt could expire if not paid before 2024 or any other date in the future.”
So Iceland could just delay any payments and then just say that we don’t have to pay anymore because it is past the expiry date. Like I said before, forget about trying to collect money from Iceland and Icelanders, just don’t lend them anymore.
You can ignore Michael Hudson’s contribution in the FT – it is a typical op ed piece which the FT often includes to spice up its otherwise clinical (but brilliant) coverage.
Askur and Stefan make the position quite clear, but like most Icelanders they fail to see the deal offered by the British and Dutch in the correct light.
The position is that deposit guarantee schemes pay out as quickly as possible – they often attempt to make no interruption to savers access to their money (please note THEIR money). Iceland did exactly this in a discriminatory way for their own savers. The UK did it – in a non-discriminatory way – for Kaupthing Edge by selling the deposits with a guarantee attached. The deposits of Icesave were paid by the British and Dutch governments essentially on behalf of the Icelandic state. At the moment those deposits were guaranteed then the debt fell to Iceland. In simple financial terms Iceland became due to pay those deposits AT THAT MOMENT.
However, the British and Dutch governments knew that such a demand was unreasonable. In fact, even just saying to the Icelanders, “Go and find the money to pay us back very soon” was also unreasonable. Accessing the world’s capital markets would have cost Iceland a huge interest rate.
So the generous, and unasked for, proposal was that the two countries would forego their instant repayment for a more gracious and less costly (to the Icelanders) alternative. Iceland was offered a grace period to get their house back in order, and the interest rate was set at a very low and fixed value of 5.5% (the average yield on medium dated US treasuries over the last 20 years – a period of low inflation and interest rates – was 7%, so why Icelanders believe they are more creditworthy than the home of the dollar I just don’t know!).
But this has been dressed up as rapacious and unreasonable.
To tell you the truth if I were the British or Dutch governments I would just turn around and say “Fine! We offered you a deal to repay us in a considerate, clear, organised, and low-interest way. You don’t want that. OK, we’ll have our, _OUR_ money, back NOW – since that’s how deposit gurantee schemes work, INSTANTLY – and to pay us back you can go and ask the capital markets or your friends.” You won’t be offered a grace period and the interest rate will be in the region of 8-12%. As for your friends, besides the Faroes, none of the other Nordics are prepared to go near you – they have issues with you still (assets being pledged to back up loans – and then the assets being sold!).
I understand that the original legislation re payment of the Icesave money to Britain and the Netherlands:-
a) restricted the amount of repayment to 6% maximum of Icelandic GDP in any one year;
b) said that any debt outstanding after 2024 should be written off.
I expect that it’s condition (b) that the British and Dutch governments don’t like.
FWIW I think that the British and Dutch governments should have accepted the Icelandic proposals last year. I don’t think it’s fair that the Icelandic taxpayers should be made responsible for 100% of this wretched first 20,887 Euros in an Icesave account when it was failures in regulation that led to the setting up of Icesave in the first place and the Landsbanki use of the passport system.
I hope that in future the Icelandic authorities will never again allow someone with a criminal conviction for financial/accountancy offences to be chairman of an Icelandic bank.
@Stefan, Askur.
The way I read the obligations of the Icelandic government, the UK and Holland have the right to demand full and immediate payment of the 3.8 billion euro. Failure to comply with such a demand would be a sovereign default on the part of Iceland with all the bad consequences that has.
However, the UK and Holland realized that is not a reasonable position and offered a loan arrangement that gives Iceland 15 years to pay, with 7 years grace and 5.5% interest.
I view those requirements as very reasonable, considering that Iceland would never be able to get a loan deal like that on the private market, and because Iceland currently has to loan money on the capital markets at 8% interest. Then how is 5.5% unreasonable?
Furthermore, the original agreement that Iceland agreed to and which you refer to, does get Iceland ‘off the hook’ to some extent.
Because of the 2024 expiration date on any payments due. In my opinion, if Iceland wants any chance in hell of the UK agreeing to a deal, you remove the 2024 expiration date from your law and just agree that you will pay for it, with the other limits you set on it, but without any kind of demand that the rest of the debt could expire if not paid before 2024 or any other date in the future.
Not saying that UK would accept such a change, but I think that is something they might consider.
Stefan said:
Where can I get one of those loans. You know the type where I tell the lender what the terms are including being allowed to write the debt off after 15 years if I struggle to pay.That is the current self-imposed loan agreement. Its a one-sided agreement set by Iceland.
No one is going to lend in future to Iceland or its public as the risk of default is too high.
Leo: There is a fundamental misunderstanding here as noted in the article. Iceland is NOT trying to get “off the hook”. Icelanders have already agreed that they have to pay and a legislation has already been passed and signed by the President to that effect. What Icelanders are objecting to however are unreasonable terms and burdens that will be placed on the Icelandic people. They simply want the agreement to be fair in terms of responsibility and the ability to actually make the payments without plunging the Icelandic state into bankruptcy.
Even if the new legislation will be rejected by the people, the older legislation (that has already been signed by the President) is already in effect.
We’re not trying to get off the hook.
Stop putting words into our mouths. We’re following the democratic procedure laid out in our constitution. If you think you’ve got any right to veto the constitutional right of a sovereign nation that’s something you have to live with and I don’t really mind.
The vote is also not about whether or not we owe you money, we’ve already acknowledged, signed and ratified the fact that we owe this money. We’re just not very happy about a deal or your inistence of presenting us with a deal we’re not sure we can keep.
And here is a petition.
http://www.petitiononline.com/NLforIce/petition-sign.html
I am quite baffled by the article in the FT to be honest. It seems to me that the writers fail to see the greater implications of allowing Iceland to get off the hook here.
1. The EEA ‘passport’ system for banks is dead. How could any government with the best interest of its citizens in mind ever allow banks from other countries again if it even has the slightest worry about the potential/willingness for the country of origin to pay the liabilities of a collapse of the bank. If I were the UK government, I would start kicking out banks from any country that I would not trust 100% to honour its obligations, and EU/EEA regulations be damned.
2. It could even lead directly to a collapse of confidence in the international banking sector as people pull deposits from foreign banks. If I had a deposit in any foreign bank right now, I’d be thinking real hard about withdrawing it right away, because I apparently can’t trust all the governments in the EEA/EU to honour its obligations under the deposit guarantee scheme.
And in the same light, the muted reaction of the European Commission also amazes me. Do they really fail to see the possible wideranging implications of such an outcome for the existing EU free market?