Just for the avoidance of doubt:
1) the democratically elected Icelandic government, under EU/EFTA financial regulation equivalence rules, agreed long before the crisis even began that it would guarantee compensation of the first EUR20887 of deposit to retail depositors in Icelandic banks from other EU countries.
2) the Icelandic banks, with explicit permission from the democratically elected Icelandic government (as part of the economic boom that vastly enriched Icelanders for many years), actively marketed their savings accounts to depositors from other EU countries.
3) The Icelandic banks then went bust and lost their depositors’ money.
4) This means that, unequivocally and in every possible sense, the Icelandic government is responsible for paying the first EUR20887 of compensation to retail depositors in Icelandic banks from other EU countries. They agreed to take on that debt, and retail depositors in the Icelandic banks made the deposits on the basis that the Icelandic government weren’t a bunch of ropey shysters who’d refuse to pay debt that they owed.
5) For understandable reasons of domestic harmony, the governments of the UK and Netherlands (where the majority of Iceland’s victims were located) agreed to pay the compensation themselves, and subsequently chase the Icelandic government for the money it owed.
6) Today’s populist refusal by Iceland’s president to pay the UK and Netherlands government the US$5bn it owes as a result, despite the extremely generous payment terms they’d been offered, represents every single Icelandic person nicking more than US$10,000 from British and Dutch taxpayers.
If that’s democracy, screw it.
29 thoughts on “Quick Icelandic banking redux”
I've not really followed this in detail. Was $5bn the totel deposited and it was all lost, or a fraction and the rest was OK? And that which was lost – how was it lost – where did the Iceland banks put the money or lend it to etc? Is there no chance of it being returned?
Can we invade and nick some of their geothermal power? After the Cod War, I quite fancy the Steam War. Starting a war for environmental reasons is something even the Decent Left haven't thought of.
7) Could you work out how much of the alleged £2.3 billion the Icelandic govt would have to pay if it actually paid the first EUR 20,887 to each saver?
8) The figure of $10,000 seems 'about right'. But if you lived in Iceland, what would you do? I personally would kick and scream, and if I were a tenant, I would avoid paying my share by simply moving abroad and no longer paying tax in Iceland. If the £2.3 bn ends up being collected from Icelandic home-owners and land-owners, well fair enough.
To my mind, this is a triumph of democracy and/or free market capitalism, i.e. devious people take money from stupid people and stupid people learn lessons. The sum total addition to human knowledge (you can't trust banks and you can't trust foreign countries) is well worth paying £2.3 billion for.
To my mind, this is a triumph of democracy and/or free market capitalism
Free market capitalism works because of enforceable contract law. If stupid people sign stupid contracts with devious people, then fair enough (to some extent anyway). But if they sign sensible contracts with people who then refuse to honour them, that isn't a triumph of anything except theft.
Larry speaks truth.
What enforceable contract law? Iceland is a separate country with its own rules. That's democracy.
Now, it may be that Iceland's reputation is now ruined and nobody wants to do business with them in future unless it's cash up front – it's up to Iceland to decide whether that future cost is more or less than £2.3 billion. Which again is a triumph of free markets, which is far better at enforcing contracts in the long run.
What annoys me, personally, is that I as a taxpayer will have to stump up my share of that £2.3 billion to compensate stupid people thanks to the spendthrift ways of my own government, but hey, that's the price of democracy and I have to live with it without whining too much.
"Which again is a triumph of free markets, which is far better at enforcing contracts in the long run"
This is the old 'building socialism involves some pain in the short term' crap with the ideology changed. Or, for a more down to earth example, the old line spun to countless innocents – 'don't worry, I'll pull out in time'. I prefer cynicism, which is what courts that enforce property rights are.
Also, the idea that, say, Tesco would be high-minded enough to boycott Icelandic fish or Mr. and Mrs. Average think twice before booking a weekend in Reyjavik because the country's reputation is mud with the UK Government is a little optimistic. Since arguably forking out £2.3bn would make the country less attractive to visitors (angry locals, apart from anything else) and possibly, if found through tax, make it less competitive as a fish supplier, the free market would incentivise the Icelanders to flip the bird at the UK Treasury, not keep its contracts.
I have a feeling that the demand from the UK and Holland is for the full amount, not the €20k per account. All those local councils which put millions in etc….
Would like to know the truth of that….
The NYT piece says otherwise – it specifically refers to payment up to the eur21k limit.
Indeed, under the agreement that's just been vetoed, Iceland covers the first eur21k for retail depositors – the UK FSCS then covers UK retail depositors up to GBP50k, and retail deposits above GBP50k are covered by the UK government. Councils aren't covered. Times story from last November.
democracy and theft are not mutually exclusive – I'm pretty sure you can vote to rob foreigners
Unusually for an Opinions are like Arseholes commentator, Steve Hill talks sense in this one.
Yes, he does – he's a retired BRS partner at PwC who seriously knows his stuff. It's a shame he doesn't have a regular gig there (perhaps they could sack Prem Sikka and Richard Murphy in his favour…)
Oh, he definitely knows his stuff – I can't say I always agree with his viewpoint, but it's from a position of knowledge, unlike Prem Sikka (particularly).
@Tom ??? Building socialism involves some pain in the short term and a lot of pain in the long term. Free markets always involve some pain, life itselfs involves pain, but in the long run the pain is less and the rewards are higher.
For any entity to be able to enter into a legally binding contract, there has to be a higher authority which creates law. Nation states exist in a state of anarchy (in the literal rather than pejorative sense). For nation states to be able to form legally binding agreements, there would have to be a world government with authority over them all. As a solution, that sounds worse than the problem to me.
The lesson is not to treat a government as a person which can bind itself because, in general, it can't.
My thoughts entirely.
If the £18k figure is correct ie guaranteed by the Icelanders , then why has the British taxpayer underwritten these poorly judged investor decisions. It is not an equitable life it would appear.
So basically this happened because the EU offered a security that has been found to be illusory. It would have been better if innocent punters had not been under the impression that Iceland was ok , yes ? . That’s the way we did it before, and it is no surprise that it was the dippy public sector that left their brains at the check in prior to making decisions with other people’s money .
In my little world ,Liability Insurance ,the market has been rogered senseless by EU licensed Players emanating notably from Ireland but also from Iceland ( Greece and Lichtenstein also ). The industry has been quietly waiting for the disaster to happen and when it does once again the British tax payer will be pick up the bill. I wonder if this fiasco was as entirety predictable to those who know anything about it . This of course is a ‘real thing’ so no-one will ebonite know or care
I say take their fishing waters and boycott arctic rolls
Also, the idea that, say, Tesco would be high-minded enough to boycott Icelandic fish or Mr. and Mrs. Average think twice before booking a weekend in Reyjavik because the country’s reputation is mud with the UK Government is a little optimistic.
it's more likely the case that Mr Barclays, Mr Citigroup and indeed Mr Everybody Else, is unlikely to lend money to a first world economy that is clearly able to pay its agreed sovereign obligations but chooses to selectively default to foreign creditors for reasons of domestic politics.
Guess who agrees with me, by the way? The Government Of Iceland. This whole crisis only exists because the Althing passed a bill agreeing that they had an obligation and agreeing to a payment structure, and the President (who is from the right-wing party that caused the crisis, now in opposition) vetoed it.
So basically this happened because the EU offered a security that has been found to be illusory. It would have been better if innocent punters had not been under the impression that Iceland was ok , yes ?
No. Allow me to reenact what happened, Crimewatch style.
Cast: ROLF, an Icelandic banker
LARS, an Icelandic government bloke
TOM, a British government bloke
ELLEN, a British punter
BLOFELD, an IMF bloke
ROLF: I would like to open a bank in your country!
TOM: Stop! Before you do so, will our citizens' money be safe in it?
LARS: Yes it will, my British chum. We'll guarantee the first €20k or so of each British customer's deposit, as international treaties dictate.
TOM: In that case, crack on.
ROLF: Come on, British people! Deposit your money in my bank!
ELLEN: All right then. Here's a big bag of cash.
ROLF: Oh, by the way, my bank's collapsing.
ELLEN: Shit! What about my money? It's safe, right?
ROLF: Yes, sort of, but you can't get it out right now, because the safe door is very stiff, and we have to handle the notes with special gloves, and we've only got one pair and the dog ate one of them…
ELLEN: GIVE ME MY MONEY NOW
TOM: Er, Lars? You want to handle this one?
LARS: Maybe later. Busy.
ELLEN: WHERE IS MY MONEY YOU MALODOROUS BUNCH OF VIKINGS
TOM: Bloody hell. OK, here, Ellen, have some of mine to tide you over until either Lars or, more probably, Rolf pays me back. Which they'll do, because they have to.
BLOFELD: Lars, are you OK? Need a loan?
BLOFELD: Sure, but you have to use some of that to pay Tom back after he got you out of trouble with Ellen.
LARS: OK GIMME MONEY
TOM: So, Lars, mate, I sort of need that money now.
LARS: OK, here you are. Wait! No! I've changed my mind!
To make this most dire and loathsome of tales more accurate, after:-
ELLEN: WHERE IS MY MONEY YOU MALODOROUS BUNCH OF VIKINGS
ROLF: Lars, baby, you know that fund we'd been supposed to set up to guarantee our deposits, and you were supposed to make sure was all hunky-dory?
LARS HASTILY DELVES INTO UNFILED PAPERS ON DESK.
LARS: Oh yes, that one.
ROLF: It's kinda broke.
SOME TIME PASSES:
LARS: (to the global public) Well, we're broke. If you're Icelandic, you get your cash back. Foreigners? You can go whistle, mateys
THE MORE ERUDITE MEMBERS OF THE GLOBAL PUBLIC: Hang on, didn't you sign up to an agreement that implicitly prohibits discrimination on these grounds? What gives, dudes?
TOM: Bloody hell. OK, here, Ellen, have some of mine to tide you over until either Lars or, more probably, Rolf pays me back. Which they’ll
and in fact one should probably extend it after ajay's closing with a final act.
TOM AND BLOFELD: what the fuck do you mean, changed your mind?
JOHANNA: I'm very sorry, ignore my excitable friend. I am in charge now. We are very sorry about this screw up but we promise you will get your money back, we just need a bit of time to pay
TOM: Oh, fair enough, that's all right then
BLOFELD: If he's cool, I'm cool.
JOHANNA: well, now to work, clearing up all the massive heap of shit that ROLF and LARS appear to have dumped on my desk
LARS: NANAANA! Fooled you!
ROLF: Hey Icelanders! You can vote yourselves EUR40,000 a head at the expense of foreigners!
ICELANDERS: Is it as simple as that?
ROLF: Yes! Just as simple as that! Nothing can go wrong! And the best thing is, you'll be taking it from the villainous Brits whose fault this entire crisis was when they maliciously destroyed my bank out of pure jealousy!
LARS: gosh I am glad that I vetoed that law that JOHANNA tried to pass preventing ROLF from establishing a media monpoly!
BTW> On your otherwise accurate comment on Felix Salmon's blog (this is to save me registering there), I'd pedantically note that Landsbanki would have been likely to have some kind of permanent establishment in the UK  and so some sort of taxable presence here, but with careful structuring you could ensure its taxable profits were low to negligible.
 As a general rule, it's tricky to avoid having one if you're doing any kind of active trading in a country.
For nation states to be able to form legally binding agreements, there would have to be a world government with authority over them all. As a solution, that sounds worse than the problem to me.
Your understanding of public international law is original, and worryingly similar to that of Heinrich von Treitschke (google him).
In the consensus world, there are four sources of international law – treaties, under the principle that pacta sunt servanda (contracts must be upheld), the UN, generally accepted state practice, and principles of natural justice. Obviously the third and fourth are a wee bit flaky, and the main project of international law from a British point of view is to move as much stuff out of them into 1 or 2 as possible.
I accidentally stumbled on to this website. What a waste of time (won't bother agian) with so many people full of inflated egos and lacking awareness of first year economics, politics and common sense. If anyone likes rampant markets they are considered to be same and any critics insane. A good example of how intolerance breeds ignorance, contempt and ultimately silencing of pluralist democracy.
I would just like to record that after something like a year of occasionally dropping the word "Worstall" into my conversation as if it was a normal regional colloquialism for "incorrect", today marks the first time that one of my officemates, more or less unprompted, said "that assumption looks most likely to be worstall". this project is on the road and now ready to come out of beta!
as in, for example "John, summer ended a while ago, your blog timestamps are all worstall". I've found it works best at the end of the sentence, but with practice you can work up to "I think we basically went worstall when we tried to add these two series together when they're not really comparable".
January 7th, 2010 at 13:06 | #20 Reply | Quote So basically this happened because the EU offered a security that has been found to be illusory. It would have been better if innocent punters had not been under the impression that Iceland was ok , yes ?
No. Allow me to reenact what happened, Crimewatch style.
Cast: ROLF, an Icelandic banker….
I see my analysis was echoed in the Telegraph ( biz section) today and the effect of passported vetting described exactly in the terms I have . The fact that instead of the hapless punters the rest of us pay does not improve matters and as I say , this is only the first.Passporting applies to financial insitutions beyond banking and the largest EL writer in the UK is right now in desperate trouble
All of this is the fault of the EU ( and by that I clearly mean the wider movement to European homogenisation in Iceland`s case)
Alex: "Your understanding of public international law is original, and worryingly similar to that of Heinrich von Treitschke."
Implying that there is an equivalence between
(a) stating that for an arrangement to be considered a legal system it requires a higher authority to enforce it
(b) attempting to justify violent nationalism
is quite frankly pathetic.