Iceland upgrade sure makes default look palatable

[girl gone mad]

by Edward Harrison, Credit Writedowns:

A friend commented to me when he saw the story that Iceland had been upgraded by Fitch, the ratings agency, that this "sure makes default look palatable". Obviously, Iceland is not out of the woods yet but their relative success says there are other ways to get it done.

The BBC reports:

Iceland is safe to invest in again, according to Fitch, which has upgraded its credit rating three years after its economy spectacularly collapsed.

Fitch raised Iceland’s sovereign rating by one notch, to BBB- from BB+, meaning that the country’s debt is now "investment grade".

(snip)

I think the January headline from the Irish Independent that Iceland fared better than us by letting its banks fail makes sense. The lesson from Iceland is most applicable to Ireland since its core problem was a banking crisis. Is it too late for Ireland on the bank debt front? Perhaps, but at a minimum, the Irish have been models of austerity, and to the degree they don’t meet their targets, they should be given a break via bank debt haircuts.

[dipsydoodle]

1. They are far from being out of the woods

They were used to an unemployment rate of 3% which is now 8% , they would like to join the EU but can't until prior debts to the UK and Holland are cleared and they would like to be in the Euro too.

[unblock]

2. it's a relatively good story, considering, but using it as an example for others may be a stretch

iceland is a tiny and isolated economy and 90% of its problems were literally 3 banks.
plus, it has its own currency, which is an advantage in this case as devaluation is a painful but quick solution.

it's not like other countries, where the inter-relationships are vast and complicated and the you can't just devalue the currency and the economy is much larger and many, many industries were had structural problems.

[elleng]

3. I agree, not comparable unfortunately.

[elleng]

4. Iceland's Financial Watchdog Sacks Director.

Iceland's Financial Surveillance Authority (FME) said on Saturday it had sacked director Gunnar Andersen following a report into his time as an executive at failed bank Landsbanki.

http://www.nytimes.com/reuters/2012/02/18/business/18reuters-iceland-watchdog.html?hp

[mbperrin]

5. Default is preferable. Gamblers lose their paper. All the houses, buildings, cars, and schools that

were there before default are still standing the day after.

Risk has consequence. Gamblers need to learn that.

[dkf]

6. If the ECB essentially subordinates Euro Debt and a new perception of sovereign debt emerges

The "gamblers" may just shut off the spigots. Then the funding ends. Is that really what the Europeans want?

[mbperrin]

7. I have had no dealings with banks since 1978. I'm better off financially than I could

have been otherwise.

The only reason we need banks is because they say so. The only spigot they have is the money we give them and allow to dole back to us for a fee. Crazy, really.

[Fuddnik]

8. The funding doesn't end.

Money is then produced, without the interest. By the government.