Why Iceland Should Be in the News But Is Not
Posted on August 25, 2011
By Deena Stryker

An Italian radio program’s story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt. The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.

As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here’s why:

Five years of a pure neo-liberal regime had made Iceland, (population 320 thousand, no army), one of the richest countries in the world. In 2003 all the country’s banks were privatized, and in an effort to attract foreign investors, they offered on-line banking whose minimal costs allowed them to offer relatively high rates of return. The accounts, called IceSave, attracted many English and Dutch small investors. But as investments grew, so did the banks’ foreign debt. In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent. The 2008 world financial crisis was the coup de grace. The three main Icelandic banks, Landbanki, Kapthing and Glitnir, went belly up and were nationalized, while the Kroner lost 85% of its value with respect to the Euro. At the end of the year Iceland declared bankruptcy.

Read more.



5 Comments to “Ripped off by their monster banks, Icelanders TOOK THEIR COUNTRY BACK—which is why Iceland should be in the news (and why it isn’t)”

  • I believe it is still the case that Iceland’s money is DEBT money created as loans by private banks and Iceland’s public bank which is partnered with the IMF whose loan to Iceland has not been touched yet the IMF is selling public properties regardless. What they have approximated is a Debt Jubilee and are beginning again with privatized Money as Debt with underfunded public services.

    Iceland needs Dennis Kucinich’s NEED act HR 2990 as much as we do.

  • I’m confused by this: “In 2003 Iceland’s debt was equal to 200 times its GNP, but in 2007, it was 900 percent.”. Is this a typo? 200 times GNP is the same as 20,000% of GNP, while 900% of GNP is the same as 9 times GNP.

  • http://www.nakedcapitalism.com/2011/11/iceland%E2%80%99s-new-bank-disaster.html

    Iceland’s New Bank Disaster

    By Olafur Arnarson, an author and columnist at Pressan.is, Michael Hudson, a Professor of Economics at University of Missouri- Kansas City, and Gunnar Tomasson, a retired IMF advisor

    The problem of bank loans gone bad, especially those with government-guarantees such as U.S. student loans and Fannie Mae mortgages, has thrown into question just what should be a “fair value” for these debt obligations. Should “fair value” reflect what debtors can pay – that is, pay without going bankrupt? Or is it fair for banks and even vulture funds to get whatever they can squeeze out of debtors?

    The answer will depend largely on the degree to which governments back the claims of creditors. The legal definition of how much can be squeezed out is becoming a political issue pulling national governments, the IMF, ECB and other financial agencies into a conflict pitting banks, vulture funds and debt-strapped populations against each other.

    This polarizing issue has now broken out especially in Iceland. The country is now suffering a second round of economic and financial distress stemming from the collapse of its banking system in October 2008. That crisis caused a huge loss of savings not only for domestic citizens but also for international creditors such as Deutsche Bank, Barclay’s and their institutional clients.

    Stuck with bad loans and bonds from bankrupt issuers, foreign investors in the old banks sold their bonds and other claims for pennies on the dollar to buyers whose web sites described themselves as “specializing in distressed assets,” commonly known as vulture funds. (Persistent rumors suggest that some of these are working with the previous owners of the failed Icelandic banks, operating out of offshore banking and tax havens and currently under investigation by a Special Prosecutor.)

    At the time when those bonds were sold in the market, Iceland’s government owned 100% of all three new banks. Representing the national interest, it intended for the banks to pass on to the debtors the write-downs at which they discounted the assets they bought from the old banks. This was supposed to be what “fair value” meant: the low market valuation at that time. It was supposed to take account of the reasonable ability of households and businesses to pay back loans that had become unpayable as the currency had collapsed and import prices had risen accordingly.

    The IMF entered the picture in November 2008, advising the government to reconstruct the banking system in a way that “includes measures to ensure fair valuation of assets [and] maximize asset recovery.” The government created three “good” new banks from the ruins of its failed banks, transferring loans from the old to the new banks at a discount of up to 70 percent to reflect their fair value, based on independent third party valuation.

    The vultures became owners of two out of three new Icelandic banks. On IMF advice the government negotiated an agreement so loose as to give them a hunting license on Icelandic households and businesses. The new banks acted much as U.S. collection agencies do when they buy bad credit-card debts, bank loans or unpaid bills from retailers at 30% of face value and then hound the debtors to squeeze out as much as they can, by hook or by crook.

    These scavengers of the financial system are the bane of many states. But there is now a danger of their rising to the top of the international legal pyramid, to a point where they are in a position to oppress entire national economies.

    more

  • similar vulture attempts

    http://jessescrossroadscafe.blogspot.com/2011/11/bank-of-americamerrill-lynch-is.html

    Pigfest 2011: Bank of America/Merrill Lynch Is Offering To Buy Claims Against MF Global

    Bank of America’s Merrill Lynch unit is soliciting for the purchase of claims against MF Global.

    As you may recall, Bank of America is one of the major creditors of MF Global with JPM, and is reported to be one of the Debtors, along with JP Morgan, involved in the litigation trying to obtain superiority of their claims over customers whose money was taken/lost/stolen by parties unknown for now.

    I have nothing against vulture funds per se, although what I hear a few of them have done with two of the failed Icelandic Banks and their former directors proves Rule Four of ZombieBankingland: Always Use the Double Tap.

    But doesn’t this seem like a bit of an impropriety, if Bank of America is one of the holders of assets, or affiliated in a court action with such a holder of contested assets, that would ultimately make customers whole? Is it conceivable that this is a conflict of interest?

    I mean, it does seem that BofA with one hand is acting with others to give its own claims superiority in the Trustee liquidation, and on the other hand it is offering to buy up the claims it has weakened by these legal actions.

    more

  • Correction and update to the above Jesse’s crossroad cafe article from a more authoritative source via Naked Capitalism’s link to a Reuters investigative report.

    via:
    http://www.nakedcapitalism.com/2012/01/more-evidence-that-jp-morgan-stuck-the-knife-in-mf-global.html

    Reader Michael C sent a link to a Reuters investigative piece on the MF Global collapse, and it’s a doozy. While in proper journalistic form it is careful about reaching firm conclusions on a post mortem that is still underway, the pattern it has uncovered is not surprising to those of us who are onto JP Morgan. As many, including this blogger, have pointed out, it was JP Morgan that did in the doomed Lehman by withhold $7 billion of cash and collateral. And we’ve written how it used one of its best private clients, billionaire investor and industrialist Len Blavatnik, as a stuffee for toxic subprime debt in summer 2007, when every financial firm was desperate to offload US housing dreck.

    The short form of the Reuters story is that JP Morgan, by virtue of being both a lender to MF Global as well as clearing its trades, has a big information advantage and could see how distressed the firm was. MF Global drew down the full amount of a newly-syndicated $1.3 billion credit facility, a huge warning sign.

    The Reuters story makes clear that JP Morgan went into “possession is 9/10ths of the law” mode, calling for full compliance with transaction procedures when normal business practice was to be more forgiving. The New York bank offers up the excuse that it lost money to MF Global, but that is not the issue. Any creditor to a bankrupt company will lose money. The issue is whether JP Morgan did anything irregular or impermissible to cut its losses, which in this case appears to have come in no small measure out of the hides of customers.

    The story is worth reading in full, but this incident gives a picture of the sort of behavior JP Morgan was engaged in:

    (quoting http://in.reuters.com/article/2012/01/19/mfglobal-jpmorgan-idINDEE80I0DO20120119 )

    “MF Global also decided to sell $1.3 billion of IOUs known as commercial paper. The short-term debt was part of some $7 billion of securities the firm sold that week. But this sale was critical, people familiar with the situation said, because MF Global had used customer funds to invest in the short-term debt and now badly needed to liquidate the IOUs and move cash into the customer accounts to meet their demands. The investments in the IOUs were allowed by industry regulations, these people said.

    “For help, Corzine turned to his old employer, Goldman Sachs, which specializes in trading the short-term paper. Corzine phoned Goldman President Gary Cohn to ask him to buy the IOUs, offering a slight discount, according to people familiar with the situation.

    “Cohn agreed, and Goldman traders made the purchases, these people said. Because it needed the cash immediately, MF Global sought to settle the deal that day, according to Corzine’s testimony in Congress.

    “JPMorgan, in its role as middleman, was able to control the speed with which MF Global’s asset sales were processed, according to people familiar with the situation.

    “Two people familiar with the transaction say that JPMorgan was slow to process the trade…It remains unclear exactly whether cash from the sale was ultimately routed to MF Global.”

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