Links 4/12/11


    1. Parveneh Ferhadi

      There is neither a moral nor a legal basis for any Dutch/British claims towards the population of Iceland. In fact, neither the British nor the Dutch have any moral standing whatsover, because their ‘claimes’ stem from their greed, which is considered a sin by decent human beings.
      Legal basis? There ain’t any, because the Icelanders just rejected the contract which is therefor null and void.

    2. Foppe

      Note that the parent is linking to his own blog, and that he (?) has the annoying habit of talking about himself in the third person, which makes reading through the first paragraph a bit taxing.
      As the argument he presents here is a bit underargued, I read his post hoping to see at least a decent defense for his claim that “Iceland has a moral obligation to pay back foreign creditors”. However, I fear the author cannot deliver on his promise.
      The gist of his argument is that, because Icelandic banks were allowed to operate in the European Economic Area (EEA), the Icelandic government now has an obligation to pay back the first €20-21.000 held in every account in case of a default. (He makes a separate point about the fact that because Icesave offered additional insurance up to 35.000 pounds for UK depositors, the UK has an additional [and so far unasserted] right to demand even more money, and that they can demand this from the Icelandic govt, even though it was Icesave that was part of the insurance scheme.) So because there was no effective European-level oversight, because the relevant EU legislation leaves regulation to the national regulators, this, according to the author, means that the local government should bear the full responsibility for any failures that happen on its watch. In addition, he argues that, because the claims made by UK/NL amount to “only” 16% of their banking-sector+borrowing-inflated GDP, their claim is not unreasonable, especially because the Icelandic people doesn’t have to pay the money back quickly. Therefore, the Icelandic govt is “morally required” to pay the full sum.
      Most of the claims made are, however, disputable. It is not at all clear to me that, simply because the UK govt could demand even more, the amount of money they are asking for now is in any way reasonable. Similarly, the argument that “not all account holders had €20k or more in their Icelandic accounts” lends no support to the assertion made by the author. (And the list goes on.) At the root of it all is the idea that political problems concerning sovereignty carry with them moral obligations in case something goes wrong, which of course means that the losses incurred elsewhere, and which could occur only because of lax supranational regulation, should be born by the weakest shoulders. (The fact that the British and Dutch governments gave additional money back to their own citizens is irrelevant to the strength of their claim on Iceland.)

      1. RebelEconomist

        RebelEconomist apologises for his use of the third person – one of his blogging heroes was Macro Man (, so RebelEconomist followed his style.

        As you say, the British and Dutch have limited their claim on the state of Iceland to the EEA minimum compensation promised by the Icelandic deposit protection scheme. Arguably, they could have claimed more because Iceland ensured that its own depositors lost nothing, meaning that, under EEA non-discrimination law, British and Dutch depositors should have been fully protected too. The British and Dutch depositor compensation schemes are also asserting a pari passu share of the payout by the Landsbanki liquidator to general unsecured claimants, whatever that may turn out to be, again according to European law. I am not sure that your point about weakest shoulders is reasonable (for example are banks supposed to forgive a debt that would bankrupt an individual but make little difference to them?) but even then it is arguable, since even after the financial crisis (2009), Iceland has a higher GDP per capita than the UK.

        1. Foppe

          I am sorry, but so long as the Icelandic authority has the right to be its own sovereing, participation in things like the EEA (or compensation schemes) are entirely voluntary. As I and Richard both note, the Dutch/UK govts made a choice to compensate their own citizens to a far greater extent than they were required to (in fact, in NL the deposit insurance was raised retroactively to €100k), and the UK government seized assets in a manner that is probably not “legal” in the sense of ratified supranationally (considering the fact that there is no supranational resolution authority); this does not, however, carry with it a “moral right” to offload part of that burden unless it is agreed to by the sovereign entities (and in the case of Greece/Ireland, where sitting governments were strong-armed/blackmailed into signing deals, I am not sure such deals couldn’t be revoked by a subsequent government). Let them fight it out in the courts if they wish..

          Lastly, GDP per capita is an utterly misleading indicator of wealth. If you want to make any argument at all, talk about relative/PPP median incomes.

          1. aet

            Fight it out in the Courts that both disputants accept., you mean. Better than the old days…

            In the old days they would have literally fought it out, ie gone to war.

          2. RebelEconomist

            Iceland volunteered to participate in the EEA, presumably because at the time they thought that it was good for trade; a country can’t expect to be excused for deciding to stop participating when the going gets bad.

            The fact the Britain and the Netherlands paid more than the EEA minimum compensation to their Icesave depositors has no effect on the size of their claim on Iceland. They are only asking for the amount that Iceland’s deposit protection scheme promised (about the EEA minimum). Britain and the Netherlands are also asking for a pari passu share of the Landsbanki liquidation proceeds, but that is because the British and Dutch deposit protection schemes subrogated the claims of their depositors for the amount of compensation that they paid – ie the depositors themselves would have a claim for exactly the same amount.

            Iceland’s GDP per capita at PPP is similarly larger than Britain’s. On the assumption that Iceland is a more egalitarian society than Britain, I dare say Icelanders’ advantage in median PPP GDP per capita is even greater.

    3. Richard Kline

      So Rebel, no country has any legal standing to force Iceland to pay a kopfing. Iceland did _not_ guarantee the deposits. One could argue that they should have by modern banking standards, but at any rate they hadn’t. The banks in question were criminal enterprises, run by those who bought inexperienced politicians to fend off any regulation; not that what regulations were desirable were understood by the authorities in Iceland; not that the actions of the bank executives were evident. When the hugely overexposed and under-reserved banks began to slide, Iceland had no funds to pay. Britain seized most of the deposits, including the deposits of Icelanders, which it kept. Britain and the Netherlands elected to make good their nationals who had deposits _without any authorization or guarantee from the Iceland authorities_.

      Is this a mess? To be sure. Should the Icelanders kick in something for the losses? Well, they’ve already agreed to do so, on the principle that they have a moral obligation if not a legal one. Should they be subjected to indentured servitude to pay off all of the claims when the bank bust wiped out virtually the entire savings of the Icelanders themselves? They don’t think so, and I don’t either. Cavaet emptor: those off shore did NOT do their homework on these banks, and I have limited sympathy for them, and none for their governments. This is why we need good bank regulations. But a post facto imposition of expectations on Iceland that _nobody_ tried to implement before things went *poof* just doesn’t walk, much less float.

      1. RebelEconomist

        Britain did not seize Icelanders’ deposits. It froze Landsbanki assets in Britain for a few months, before releasing them to the Landsbanki liquidator when it seemed that Iceland intended to “honour its international obligations” (as Iceland’s prime minister, Johanna Sigurdardottir put it). Unfortunately, despite a democracy dating back to 930, the Icelandic people chose to reject the conclusions of their government and parliament when it involved sacrifice.

          1. MyLessThanPrimeBeef

            It’s the Great Monetary Conveyor Belt that greases the world.

            It sinks near Iceland but it’s broken now, cauing many heads to get hot. Some scurry for cover over the coming Global Heating Heads but others deny its existence.

      1. RebelEconomist

        I chose that nom de plume because, at the time I began commenting on blogs (about 2006), I was rebelling against the laxity of central banks and the irrelevance of most academic economics research in the face what seemed to me to be an impending crisis of moral hazard. Perhaps I should change my handle to PrescientEconomist!

        1. Toby

          Too much of an oxymoron for my blood.

          How about APE (AccidentallyPrescientEconomist)? I’m no expert thankfully, but from what I’ve seen and read over the years, economics is as good at prediction as astrology.

          How happy the economist who get’s one prediction right in one hundred, how dismayed the mathematician. Or something like that.

    4. KnotRP

      Dude…show me where the population of the country signed off on insuring the private bank’s over-leveraging monumental stupidity. This is the phase where the unwise investor learns what losses are….if it were the “insured-by-the-Icelandic-people sure” thing you pretend it is, it wouldn’t have been
      paying the obnoxious interest rates it was. The interest rates
      demonstrate it had zero real backing, and anyone who ignored
      that is an investing moron who just received an expensive
      education in “if it looks to good to be true, it is”.

    5. Matthew G. Saroff

      Considering the fact that the UK compounded the collapse of the Icelandic banks by invoking anti-terrorism statutes (!) to freeze their assets, and were at least as negligent regarding regulations, they can go Cheney themselves.

  1. Brick

    Uk and dutch regulators did not validate Icelands ability to pay up, so part of the fault lies with UK and Dutch voters who voted in politicians who allowed bad regulation. Equally the icelanders voted in politicians which allowed lax regulation and poorly funded deposit insurance so the blame lies with them as well. I can see a middle ground where the cost should be split by population size with some help from the EU which also did not regulate properly. I see no benfit in crashing the Icelandic economy, nor do I see it as fair that they shift the whole responsibility elsewhere.

    1. RebelEconomist

      This idea that British and Dutch regulators were negligent is one of the common myths about the Icesave dispute. Considering that the dispute is often characterised as two big countries bullying a small one, it is ironic that one reason that Britain and the Netherlands got into this mess is that their bank regulators felt compelled, against their better judgement, to accept the right of a branch of an Icelandic bank to operate in their countries as if its home regulation and deposit protection scheme was up to the same standard as in the larger European economies. In fact, when the FSA merely warned UK depositors about the possibility of delay in receiving compensation from the Icelandic deposit protection scheme, Icesave complained that such warnings were a “violation of European law”:

  2. a

    It’s clear that the Icelandic government made promises to the British and Dutch governments, which for instance resulted in them agreeing not to block the IMF’s bail out for Iceland back in 2008. I thought it was outrageous at the time that the two governments had taken this stance, but in the end Iceland did make engagements to get the IMF money. These promises have not been kept. I guess you could say, the more fool the British and Dutch for believing the Icelandic government, and the ball’s now in their court.

    But to conclude from this that Iceland has taken the right path, as opposed to Ireland, is fantasy. No one will be allowed to take Iceland’s path from now on, because no one will henceforth believe a debtor country will keep its promises. I think this has already influenced how Greece, Ireland, and Portugal have been treated, and they can thank Iceland for it.

    1. aet

      The money guys take out there disappoinyments in the terms of future loans, eh what? So what?

      I mean – so what else is new?

      Right winger sought to be proud of Iceland, a it would have difficulty re inning any deficit in future, where the debt is owed to or funded by non-Icelanders.

      Balanced budgets here we come.

      1. aet

        Lots of typos in my last comment.

        Point being, no one lending to them on reasonable terms, Iceland’ Government MUST become fiscally prudent?

        To the extent that right wingers want Governments never to borrow beyond present and current income to meet the needs of the population, they ought to pay attention to how it goes for Iceland.

        Perhaps choosing to live so, and being forced by circumstances or others to be so, makes some difference.

  3. Bernard

    so the Dutch and British investors got scammed by an unethical bank! who could have guessed that. lol. as far as i can gather, these are private businesses supposedly regulated or not by Government ministers.

    sounds like someone didn’t do their job. in most cases, business declare bankruptcy and leave the suckers high and dry.

    but we can’t have that here can we?? Banks have the moral high ground from the arguments i see here. only Banks have no morals, when it comes to business.
    profit is the only “measure” of success, not morals.

    if the Icelanders refuse to be suckered into accepting private business’s thievery, i am shocked, just shocked. to think the Icelanders would adopt business models here when it came to “business’s” idea of bankruptcy.

    oh the moral outrage!! cry me a river while you are at it.

  4. aet

    It seems that England feels she owes no debts to iceland for Iceland’s help in the Battle of The Atlantic, sixty years ago…

    I wonder if Iceland will become more “Germanic” again.

  5. RebelEconomist

    Britain and the Netherlands had no choice but to assume that Iceland’s bank regulators were sufficiently competent to ensure that Landsbanki (of which Icesave was a branch) was behaving ethically (see my comment at 7.59). By the way, none of this has anything to do with protecting banks – Landsbanki shareholders and senior management have lost as much as they can legally be required to lose (ie their stake and jobs respectively). Better to gather a bit further before expressing your opinion.

    1. zephyrum

      Reb, your position is clear but the support for it is not. For example, you say “Britain and the Netherlands had no choice but to assume…” Really? Why? It seems to me that since these countries chose to bail out their risk-seeking depositors, their redress is against Landsbanki.

      If we import a container of bad products from a company in Korea, I don’t see our government making good to the citizen customers and billing the Korean government. Do our government regulators have any choice besides trusting the Korean regulators (as if there were any), and what about the customers who paid more for better products, should their taxes go to make the cheapskates whole? Why should monetary instruments suddenly deserve special treatment?

      1. RebelEconomist

        Britain and the Netherlands had no choice but to assume that Icesave was competently regulated because they would have been in breach of EEA rules had they not done so. And no doubt they would have been accused of treating a small country with contempt too.

        A branch of an overseas bank comes with a home banking system deposit guarantee, generally considered to be backed by the government. Perhaps you are an American, and you have an FDIC-insured deposit in a large bank. Have you considered the possibility that you might lose your deposit in the event that your bank defaults, because, like the Icelandic deposit protection scheme, the FDIC fund only holds about 1% of the value of insured deposits? You would probably expect the government to step in and back the FDIC, but you might be disappointed, because the FDIC is an agency of, not part of, the US government.

  6. KFritz

    If the Tony Wikrent’s Corrente Civil War article were a Wikipedia article, it would be tagged with “This article needs citations.”

  7. MyLessThanPrimeBeef

    When you say Fukushima is now 7, the highest, doesn’t it make people falsely assume that there is not an 8, i.e., it can’t be worse?

    But surely, it can get worse…if not there, somewhere else.

  8. Dean Sayers

    I humbly Suggest-

    Glass-Steagall: Dead for 2 Decades and Counting

    In 1996, Greenspan gave the Federal Reserve Board the green light to change the practices governing commercial bank holding companies. Under Glass-Steagall, they could only invest up to 5% in investment banks (due to the added risk). Greenspan quickly doubled this limit twice: first to 10%, and then to 25%. 8 months later, another decision opened the doors to insurance underwriting, allowing Traver’s (under the management of Sandy Weill, who had already unsuccessfully tried to acquire JP Morgan) to acquire Solomon Brothers. Less than a year later, Traveler’s merged with Citicorp.1

    Enter the beast: a bank which merged securities underwriting, insurance underwriting and commercial banking – precisely the amalgamation which ushered in the banking instability of the early 1900s – only this time, the publicians had a new motto: too big to fail. Perhaps more ominous is the name itself though: Citicorp, now Citigroup Inc., was once known as National City Bank, variously administered by James Stillman (who managed the bank in his retirement via discrete courier), Charles E Mitchell (touted in 1933: “Mitchell more than any 50 men is responsible for this stock crash” -Carter Glass).2 Mitchell was also on the board of directors for American IG Farben3 (a pharmaceuticals combine which produced Zyclon B for the Nazis), which cartelized with Standard Oil New Jersey with the help of a 30 Million bond from National City Bank.2,4

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  10. Jim Haygood

    In Tony Wikrent’s hatchet job on the Confederacy, he writes:

    ‘Rarely discussed or acknowledged is that 300,000 southern whites also joined the Union army. Nearly a quarter of all Union armed forces, nearly one half million, actually came from the South. … So, the story of a unified Confederacy bravely fighting off invading Yankees is a damnable myth.’

    ‘Rarely discussed or acknowledged?’ Dude, ever actually visited the border states you write second-handedly about? Tour the Civil War battlefields of northwest Arkansas, for instance, and you’ll learn that the populace there split about half and half between fighting for the Union and the Confederacy.

    It’s common political-economic knowledge that the mountainous, ‘dirt-poor’ hillbilly areas of the border South had little stake in the cotton economy, the tariff issue, or slavery for that matter. Then as now, the Appalachians, Ozarks and points between were culturally distinct, neither part of the Deep South nor the industrial urban North.

    Treating these commonplace facts as conspiratorially concealed secrets, Wikrent attempts to prove that the Confederacy was largely despised even by its own people. Naturally, his wholly one-sided screed doesn’t mention New York City’s violent draft riots of 1863, or the practice of paying penniless immigrants to take one’s place in the Union army to avoid military service. That the Union was no model of social cohesion either demolishes Wikrent’s flaky thesis before it ever gets off the ground.

    But this comically grandiose assertion of Wikrent’s literally made me burst out laughing:

    ‘One thing I really would like you to take away from this diary is a basic sense of how the United States, as a self-governing democratic republic, cannot long tolerate oligarchic and aristocratic ideas in its body politic.’

    AH HA HA HA! Dear Tony, you poor sheltered soul — ever heard of TARP? JP Morgan Chase? Goldman Sachs? You must not get out much.

    And obsessed with smearing ‘government-hating, insurrection minded, treason-breathing, violently inclined’ neo-Confederates, you fail to discern that the mighty centralized state which bails out bankers as it pummels innocents with drone strikes was bequeathed to us by the fanatical Abraham Lincoln, who thought it worthwhile to sacrifice half a million lives to ‘preserve the Union.’

    I beg to differ.

  11. g kaiser

    The population of Iceland can in no way, shape or form be expected to pay for criminal banksters.
    It is about time someone just says stop. Let the banksters pay, they have shoveled untold fortunes for years into their own pockets.

    1. RebelEconomist

      And how do you do that? Not by Iceland refusing to repay Britain and the Netherlands for the deposit insurance payments they have made. That refusal just transfers money from British and Dutch taxpayers, who were certainly not responsible for the conduct of an Icelandic bank, to Icelandic taxpayers, whose bank regulator and deposit protection scheme failed.

      1. ScottS

        Iceland has no jurisdiction over the UK or NL. How are they going to police foreign subsidiaries? If the UK was regulating the local branches, forcing them to pay deposit insurance premiums, this wouldn’t be a problem.

        So let’s water down bank regulation some more and let the market decide, right? That’s the neo-liberal spirit!

  12. g kaiser

    The British and Dutch rescue of individual savers were unilateral decisions made by the respective governments.
    Where in the scheme of things have they suddenly got the authority to act, and then present the bill to the Icelandic people? Where did the man in the street agree to this in Iceland.?
    This is a modern form of slavery and should, and will, be rejected.
    Let the guilty pay, strip the bankers of their assets, jail them where fraud was involved, and do that right around the world.

  13. RebelEconomist

    The British and Dutch paid their depositors what they were expecting to receive from Iceland, in addition to their own top up compensation, and are only claiming from Iceland the amount promised by the Icelandic deposit protection scheme. Iceland is responsible because they joined the EEA, presumably because they thought that it would be to their advantage to have free access to the European single market, and this allowed Iceland’s banks to take deposits in Britain and the Netherlands, subject to certain conditions about the adequacy of its bank regulation and deposit protection scheme.

    1. ScottS

      You don’t make the case why Iceland’s taxpayers have to pay deposit insurance for Brits and the Dutch.

      Icesave just happens to be headquartered in Iceland. It’s up to the host country to police the local branches. And if they want to insure their nationals’ deposits, then it’s their problem. Don’t pass the buck to Iceland’s taxpayers.

      In no way, shape, or form should Iceland’s taxpayers be on the hook for a private company’s misbehavior. The only story here is why the rest of us are stupid enough to do so.

      1. skippy

        Yep, its always go after the sheeple and not the wolves.

        Skippy…rebel, should a nations citizens bare the whipping for a few financial pedophiles, only because they are harder too indict and prosecute…eh…not as large or pliable mob to extract false value (fraudulently pumped up electrons) post event. Whom broke the law?

      2. Dave of Maryland

        In the end, if Iceland says NO, there’s not a thing anyone can do about it. That’s what being a sovereign country is all about. Doesn’t make any difference what the rules are or what treaties may have been signed. If you’re sovereign you can change your mind as often as you like, for any reason, or for no reason at all. Get used to it!

        1. ScottS

          You obviously haven’t heard of the WTO. Your country is free to do whatever it pleases, so long as it also pleases the WTO.

        2. RebelEconomist

          Of course Iceland can refuse to repay, but, as I said in my opening comment, that amounts to default.

          Having come full circle, that is probably enough comment from me here.

          1. ScottS

            BREAKING NEWS! Mugging victim defaults on obligation to mugger.

            “My credit rating will recover in 5 years,” Davis Miles, the mugging victim, said. “I think I made the right long-term decision. The stab wound might be a short-term issue, however.”

            The Mortgage Bankers Association issued a press release authored by Frederic Mishkin showing a startling 512% increase in strategic mugging defaults since the start of the global financial crisis.

            “It’s shameful how easily people can rationalize reneging on their moral obligations,” said Art Tolstoy, the mugger. “Our grandparents could conduct robberies with a handshake and a shiv. Now, we have to forge witness affidavits just to escape going to jail for our crimes.”

    2. Ming

      Perhaps you do have a point that Iceland voluntarily joined the Eaa… Then Iceland pay the Brits and Dutch in Icelandic currency at the pre- crash exchange rate( afterall the crash was Wallstreet’s fault), and impose capitol inflow controls and inflow taxes to prevent the Brits and the Dutch from buying up the assets of Iceland…. In effect…. The Brits and the Dutch would be limited to use Icelandic money to vacation in Iceland, buy processed goods (thanks to cheap geothermal power), or buy fish (should be especially attractive to the british). As a bonus, Iceland will turnover it’s bankers to Britain and Holland for prosecution, after serving an appropriate jail sentence in Iceland.

      No one has the right to enslave another via a legal contract.

      Money can be printed, something that Britain with a sovereign currency, can easily do. So in a sense, the British government is just being cruel.

      1. ScottS

        Careful, Ming — you’re going to give our “rebel” economist heart palpitations. Capital controls? Surely you jest! Iceland should sell all its public assets at firesale prices to pay the UK/NL back in rapidly appreciating eurobucks. If they can’t find any local buyers, I’m sure there are some banks in the UK that will be happy to “invest” in Iceland.

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