Iceland rejects Icesave repayment deal

[Ghost Dog]

Source: BBC

Icelanders have rejected the latest plan to repay the UK and Netherlands some 4bn euros lost when the country's banking system collapsed in 2008.

Partial referendum results show 58% voting no, and 42% supporting the plan.

"The worst option was chosen. The vote has split the nation in two," Prime Minister Johanna Sigurdardottir said on state TV.

It is the second time a referendum has rejected a repayment deal, and the case will now go to an international court.

Read more: http://www.bbc.co.uk/news/world-europe-13022524

---

Some background:

Iceland votes on Icesave-Landsbanki repayment

Icelanders are voting in a referendum on the latest plan to repay the UK and Netherlands for costs incurred when its banking system collapsed.

The country overwhelmingly rejected a previous repayment plan, which was put to a referendum last March.

The new deal offers less onerous repayment terms, but opinion polls suggest it will again be rejected.

...

The British and Dutch governments had to reimburse 400,000 citizens who lost savings - and Iceland must now decide how to repay that money.

/... Or so the BBC pronounces: http://www.bbc.co.uk/news/world-europe-13022524

--
Iceland, fight this injustice

Saturday's referendum is a chance for Icelanders to strike at the conspiracy that leaves us all bailing out financiers

On Saturday the Icelandic people vote in a referendum on whether the Icelandic state and thus the citizens should guarantee the so-called Icesave claim. Icesave was a bank deposit account that promised market-leading interest rates. When the bank failed, the question arose if the Icelandic depositors' guarantee fund – a private institution financed by the banks – should have taxpayer backing. Instead of letting depositors lose their money or even wait for compensation from the bankruptcy estate, the governments of the UK and Netherlands (where the Icesave products where marketed) decided to reimburse depositors from their own countries. The reimbursement included the full principal, while the recklessly high-interest profits of the risk-seeking depositors were thrown in as a bonus.

Then the British and Dutch authorities went to the Icelandic government and claimed, with reference to EU regulation, that the compensation was in fact the responsibility of the Icelandic taxpayer and that Iceland had to reimburse the British and the Dutch in full.

...

In a similar vein, the people of Ireland, Greece, Portugal and other EU nations have had to accept a total guarantee of all loans made by commercial lenders, thus leaving both financial institutions and bondholders free of all responsibility. Why is this? Has this been discussed properly? Is the idea that taxpayers should necessarily guarantee private lenders a commonly accepted proposition? Is reckless lending supposed to be without consequence?

Instead of applying the customary methods of writing off debt, it seems that an invisible consensus has been created – reminiscent of Chomsky's phrase of the "unconscious conspiracy" – that the financial excesses and reckless lending of the past decade shall be carried forward by the taxpayers into the unforeseeable future. As a result, citizens across Europe are facing extreme cuts in public services, tax rises and massive rises in unemployment.

/... The Guardian explains: http://www.guardian.co.uk/commentisfree/2011/apr/08/iceland-referendum-conspiracy-financiers?INTCMP=SRCH

--
And, as an aside:

...The opposing yes and no camps have been running a fierce campaign battle, and the national conversation has been completely dominated by the dispute. Indeed, mention the word "Icesave" to Icelanders, and most want to run for cover. Which is why the matter of the "golden geese" last week provided something of a welcome respite.

The story took most everyone by surprise. Ten mega-rich investors from the US and Canada had contacted Icelandic authorities and were pledging to invest up to $15bn into our cash-strapped economy. All they wanted was a teeny-weeny favour in return: Icelandic citizenship for themselves and their children.

To the glib observer, the deal certainly sounded attractive. The tycoons' Canadian attorney, one David Lesperance, gushed to Iceland's national public-service broadcaster RÚV that the group had been so taken with the country that they wanted to "join team Iceland". They were, he said, "motivated beyond money" and were primarily looking to invest in the country for political and philanthropic reasons.

When the reporter sounded doubtful, he quickly added that they were also concerned about the number of nuclear power plants being built where they lived, and about their children being drafted into the military. Neither of which would happen if they lived in Iceland.

/... http://www.guardian.co.uk/commentisfree/2011/apr/07/icelandic-citizenship-golden-geese

[aquart]

1. And earlier today I asked where the rich planned to go after they destroyed us.

Now I know. Poor, doomed Iceland, if they take them in.

[sabrina 1]

21. I don't think they'll be going to Iceland. Iceland is fighting

the attempt to make ordinary tax-payers pay the debts run up by the rich. They have investigated banks and started prosecutions of bankers and former members of their government who contributed to the scam.

Good for them, I am hoping their example of making the corrupt pay their own bills will start spreading around to other countries, including this one.

Icesave was a bank deposit account that promised market-leading interest rates. When the bank failed, the question arose if the Icelandic depositors' guarantee fund – a private institution financed by the banks – should have taxpayer backing. Instead of letting depositors lose their money or even wait for compensation from the bankruptcy estate, the governments of the UK and Netherlands (where the Icesave products where marketed) decided to reimburse depositors from their own countries. The reimbursement included the full principal, while the recklessly high-interest profits of the risk-seeking depositors were thrown in as a bonus.

Iow, they bailed them out and now they are trying to make innocent people pay their debts. Rich people, unless they are honest, won't want to go to the only country so far, saying 'no way'!

[naaman fletcher]

2. good for them!!!!

The bankers want to enslave Icelandic taxpayers and force them to cover the banks bad investment losses. Screw that! Too bad however that Ireland has already fallen for it.

[northernlights]

3. they want to "join Team Iceland?"

:puke: :puke: :puke: Don't let you in, Icelanders. Whatever you do, do NOT let them in. These scum need to learn they are welcome nowhere in the world. They probably made some of their billions off the nukes they are now afraid to live near. :puke:

[northernlights]

4. WHOA!!!!!!! Their worried about their children being drafted?!?!

Thank you, elite assholes, for tipping us off as to one of the surprises coming down the road...

[quakerboy]

15. I disagree

Let them in, then tax the hell out of everything they do.

[jerseyjack]

5. Our bankers stuck it to U.S. taxpayers...it was called TARP

and what is still owed will be paid by U.S. taxpayers.

[bemildred]

6. Whoa, a second landslide rejection! nt

[Hotler]

7. k&r n/t

[sendero]

8. "and Iceland must now decide how to repay that money"

... uh, no. They must decide IF they are going to pay that money. They can tell the UK and Dutch "tough darts, that is capitalism" and I hope they do.

[Betty Karlson]

9. Except that the Icelandic government at the time

(that is to say, Johanna's predecessor) promised to pay the money back. Which means that IF would be a breach of contract.

Iceland is now threatened with (in addition to lawsuits, statutory interest, etc)

a) Fines by the European Free Trade Association (of which it is a member state)
b) being cut off from IMF money - the loans were subject to the understanding that Iceland would reach an agreement with the UK and the Netherlands.
c) a Dutch veto against Iceland's admission to the European Union.

[sendero]

11. Everyone.;

.. that borrows money promises to pay it back. There is this thing called bankruptcy that wipes out debts.

You have to understand, this is like numerous scenarios in Europe. The UK/Dutch didn't bail out Iceland, they bailed out their own bad investments. Now they want the people of Iceland to pick up the tab.

All of these countries put in the position of having to bail out bankers should tell the bankers to pack sand. This is capitalism, you didn't do you due diligence, you got high yields but OOPS, it blew up. It is YOUR PROBLEM not the people of Iceland's.

As for all of the sanctions they are small potatoes compared to what is being asked for. IMF, surely you jest - they are the KISS OF DEATH and everyone knows that. EU, the EU is living on borrowed time as it is.

Looks like the people of Iceland are a lot smarter than you.

[muriel_volestrangler]

14. This is about bailing out small depositors, not bankers

This is about who pays for the Icelandic equivalent of the FDIC. The Icelandic government paid for it, for Icelandic depositors, and said they would also pay for it, as set down in law, for foreign depositors. But they didn't have enough money for the latter, so the UK and Dutch governments did, and are now demanding that money, with interest, from the Icelandic taxpayers.

Iceland is not technically 'bankrupt', and so this is not a debt that can just be said to be wiped out.

[quakerboy]

16. Sort of.

As you say, other governments have already taken the initiative in making sure "small depositors" are made whole. Now they wish to in turn be made whole.


I would be curious what the average "small depositor" had riding on this one. And what kinds of consequences on the Icelandic annual budget this deal would have had.

[muriel_volestrangler]

19. This is for a guarantee up to €20,000 per person

and since the figures talked about are roughly 400,000 depositors and €4 billion, then it's an average of about €10,000 per depositor.

The long term consequence is still hard to judge; there are some assets that belonged to the speculators who borrowed from the banks, so they will eventually be sold to help pay for it. The figure the Icelandic government has guessed at for the eventual bill is £168 million, according to the BBC story.

[sendero]

23. I disagree..

.. this is the same scenario that has played out all over the world. Bankers FUCK UP. They get sovereigns to bail them out. You say it is small depositors but I'm pretty sure that the UK and the Dutch did not pitch in from the goodness in their hearts, no, they are BANKERS and they stood to lose BILLIONS so they ponied up a bailout to protect their own interests.

I hope the people of Iceland tell them to FUCK OFF and I'll bet you MONEY they will be better off doing so.

Just like in 2008 we should have told our bankers to FUCK OFF - we might be rebuilding our economy by now.

[muriel_volestrangler]

24. I think you may be thinking of Ireland, not Iceland

You have read the OP, haven't you? The bits about '400,000 citizens who lost savings' and 'depositors guarantee fund'?

The UK and Dutch are not 'bankers'. It was the UK and Dutch governments who paid, with their own taxpayers' money, and they want they Icelandic taxpayers to cover it, because that was what the Icelandic law (and government) said would happen.

[sendero]

25. And they did this why?

Because they are nice people?

[Betty Karlson]

32. No, to save the world's economy

If Iceland had completely defaulted on this "tab", as you refer to it, then the whole European economy could have gone into hyperinflation. And just tell me why the countries that had strict regulations for their bankers (Netherlands, UK) should be paying up when other less prudent countries threaten to default. Of course they have a right to be reimbursed in time!

[sendero]

26. You are right....

.... this isn't exactly like the sovereign bailouts of other countries, it is slightly different in that the UK and the Dutch bailed out their own depositors. So, why did townships in the UK and dutch citizens have large deposits in offshore banks?

Because they were getting great yields? And did they not think that there was risk associated with those yields?

There are so many culpable entities in the mess the world's finances are in you'll just have to forgive me for painting with a broad brush. Foolish people all over the world tried to get something for nothing and oops, it didn't work.

I have no sympathy for them and I still hope the Icelandic people vote against this.

[muriel_volestrangler]

28. Yes, the Icelandic banks were paying slightly more than other banks

However, the Icelandic government pointed out the deposit guarantee scheme was in place, and actually got quite annoyed when, earlier in 2008, British newspapers starting asking how safe the money was - they said they'd pay the €20,000 faster than the British version of the scheme would.

The thing is that savings deposits are not like corporate bonds, for most people. People really think they should be able to get their money back from them - that it is still their money. And that has been a typical attitude since FDR introduced the FDIC to stop bank runs, in the 1930s. So they believe governments when they say they are regulated and guaranteed (up to a certain amount, anyway), and they do not 'do due diligence'. They think that a deposit is a fundamentally different thing to lending money to a bank.

[sendero]

31. Well maybe..

.. they should get a lesson in REALITY. There is NO FREE LUNCH.

[Lydia Leftcoast]

27. 400,000 depositors is more than the entire population of Iceland

which has only 319,000-some people.

This would be a huge burden for the people of Iceland, forcing them to repay something that most of them had no part in, not to mention the fact that their economy is in the toilet already.

[muriel_volestrangler]

29. Their economy was booming before 2008, because of their deregulated banks

It's in the toilet now because of this situation. And they did elect the governments that did the deregulation. In mid 2008, a professor of Economics was pointing out how Icelanders had the 4th highest GDP per capita in the OECD.

[Lydia Leftcoast]

30. Well, they don't now

Their unit of currency, the Icelandic kronor, is worth less than a U.S. cent.

[plumbob]

18. Breach of contract? How come it's not a breach of contract when

these large banks don't safeguard your title to your house? When investment companies bet against the instruments they're selling you? When BP kills 11 people outright and awards safety bonuses? Isn't there some contractual obligation to actually have safety first? What happened to the contracts of the auto workers in this country? What about the contract the Japanese electric company had to operate safely? Things change, and so do contracts.

Lawsuits? Big deal. Half the lawyers in every legal action lose. That means they have a .500 average as a profession by design. There's a guy suing NASA for trespassing on the moon, which he claims to own. So lawsuits are not a problem - in fact, really big companies avoid them like the plague - that's why they make you sign away your right to sue and force you into arbitration with an arbitrator they own.

European Free Trade Association - pay the fines, bound to be pennies on the dollar, just like BP now going to pay a few million in fines for destroying the gulf.

Being cut off from loan sharks is needed medicine! Welcome it, embrace it! I have not had an account, loan or any other association with any bank since 1978, and it's great to be able to spend your own money without someone charging you for it.

Why is the EU such a great deal? Ask some of the other members if they're totally happy. And then once the Dutch have burned that bridge forever, they can expect no chance in the future for financial dealings with Iceland. Every bridge is a two-way.

I like what the Icelandic people are doing and saying, and if their government is wise, they will heed it.

[trud]

20. So

So, it says take a leap EFTA, IMF, and EU. I would like to see that.

[girl gone mad]

33. They are in no danger. They've done the right thing.

All they have to do is look to Argentina.

Since Icelanders first told off the banksters, their economy has been on the mend:



The brilliant Michael Hudson has written good analysis http://www.creditwritedowns.com/2011/04/why-iceland-voted-no.html">here. An excerpt:

...But how is Iceland to obtain the pounds sterling and Euros in the face of its shrinking economy. This is the major payment risk that is still unaddressed. It threatens to plunge the krona’s exchange rate.

Furthermore, the settlement included running interest charges on the bailout since 2008, even the extra-high interest charges that led depositors to put their funds in Icesave in the first place. Icelanders viewed these interest premiums as compensation for risks – that were taken and should be lost by the high-interest Internet depositors.

So the Icesave problem will now go to the courts. The relevant EU directive states “that the cost of financing such schemes must be borne, in principle, by credit institutions themselves.” As priority claimants Britain and the Netherlands will indeed get the lion’s share of what is left from the Landsbanki corpse. That was not the issue before Iceland’s voters. They simply aimed at saving Iceland from an open-ended obligation to take the bank’s losses onto the public balance sheet without a clear plan of just how Iceland is to get the money to pay.

Attempts by creditors to persuade nations to bail out their banks at public expense thus is ultimately an exercise in public relations. Icelanders have seen how successful Argentina has been since it imposed a crew haircut on its creditors. They also have seen the economic and political disruption in Ireland and Greece resulting from trying to pay beyond their means.

Creditors did not give accurate advice when they told Ireland that it could pay for its bank failures without plunging the economy into depression. Ireland’s experience stands as a warning to other countries about trusting overly optimistic forecasts by central bankers. In Iceland’s case, in November 2008 the IMF staff projected yearend-2009 gross external public and private debt at 160% of GDP – but observed that an exchange rate depreciation of 30% would push the ratio to 240% of GDP, which would be “clearly unsustainable.” But the most recent IMF staff report (January 14, 2011) shows end-2009 gross external debt at 308% of GDP, and estimates end-2010 gross external debt at 333% – even before taking the Icesave and other debts into account!

[DemReadingDU]

10. +++

[Turbineguy]

12. It's not as if

a new Hitler will emerge to try and enslave the World.

This David Lesperance is a popular guy around here today:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x857407

[crickets]

13. Golden geese - the nerve!

"motivated beyond money" ...Suuure.

[quakerboy]

17. Not that this will happen

but wouldn't it make for an interesting turn in international politics if investing outside ones own country could easily lead to a loss of that investment without recourse?

[xchrom]

22. Good. Make them that broke it pay it. Nt