Iceland and Banks

There may be some other circumstance , I know with all the people that have mastered every subject . I could learn

Here was an interesting article about how the Icelanders dealt with their banks. One of the interesting points is the Icelanders decided that since the banks were private for profit companies, why should they (the Icelanders) be held responsible for their business losses.

The IMF and the European Union wanted to take over its debt, claiming this was the only way that the country could pay back Holland and Great Britain, who had promised to reimburse their citizens.

Protests and riots followed, which eventually forced the government to resign. Elections were brought forward to April 2009, resulting in a left-wing coalition which condemned the neoliberal economic system, but immediately gave in to its demands that Iceland pay off a total of three and a half billion Euros.

This required each Icelandic citizen to pay 100 Euros per month for fifteen years, at 5.5% interest, to pay off a debt incurred purely by private parties. It was the straw that broke the camel?s back.

What happened next was extraordinary. The belief that citizens had to pay for the mistakes of a financial monopoly, that an entire nation must be taxed to pay off private debts was shattered, transforming the relationship between citizens and their political institutions and eventually driving Iceland?s leaders to the side of their constituents.

The Head of State, Olafur Ragnar Grimsson, refused to ratify the law that would have made Iceland?s citizens responsible for its bankers? debts, and accepted calls for a referendum.

Of course the international community only increased the pressure on Iceland. Great Britain and Holland threatened dire reprisals that would isolate the country. As Icelanders went to vote, foreign bankers threatened to block any aid from the IMF.

It sounds as though the Author concurs with with the video

Well Iceland decided to let it’s domestic banks default on their interbank loans to the global banking community. Then, they took over the banks and did debt modification to reduce the amount of debt that homeowners owed.

There is no way we could have defaulted on our bank’s credit without collapsing the system, and we would have never been able to nationalize the banks. However, I wish the US had forced our banks to do mass scale debt modification as part of the deal and reduce compensation to partially offset that loss, but they didn’t. Now it is too late as we don’t have leverage over them anymore, and the only way to do a mass scale debt modification is through taxpayer money which will be impossible to sell to the public.

Bernanke’s latest plan was to reduce the burden of debt on mortgages by pushing down interest rates on mortgages, so homeowners can refinance at lower interest rates which would reduce their debt burden. However, it isn’t enough, and people who are underwater or have mass credit card debt will never be able to refinance even at very low interest rates due to nature in which the loans were made.

It is very likely that many people will never be able to get out of their debt ever especially as growth slows in the country. The amount of private debt is 3-5x the amount of government debt. We need to do a relevering where the government takes on debt and pushes down private debt through regulation on debt and loan modification. And, SINCE it is largely the fault of the wealthy, a large burden should be placed on them to fund our tax revenues to do this…we need to effectively create a compensation reduction that should have happened in 08’ but didn’t…

No man should burdened with an other man’s debt

Such is the evil of government.