The Icelandic "Miracle"

By Big Tent Democrat, Section Economy
Posted on Thu Sep 01, 2011 at 10:55:15 AM EST
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Via Krugman, the IMF report (PDF) on how Iceland has put itself on the right path. This stuck out for me:

A new and significantly smaller banking system has emerged from the crisis, with substantial private sector involvement. The banking system now holds assets of about 200 percent of GDP (one-fifth the size of the system pre-crisis) and is comprised of 14 institutions (23 before the crisis). This downsizing was largely achieved by transferring domestic assets and deposits to new institutions and imposing losses on general unsecured creditors. Work to address legacy vulnerabilities in the financial system (including the high level of nonperforming loans, loan and deposit concentration, and financial imbalances) is progressing. In particular, household and corporate debt restructuring is finally advancing and will help restore bank and private sector balance sheets.

Facing up to reality of the banks' true financial condition worked in Iceland. Maybe it can work here.

Speaking for me only

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The Icelandic "Miracle" | 39 comments (39 topical)

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The banks own (5.00 / 2) (#1)
by Mike Pridmore on Thu Sep 01, 2011 at 11:07:55 AM EST

a lot more politicians per capita here than they do there.

: Well, it is a lot harder to buy (none / 0) (#13)
by inclusiveheart on Thu Sep 01, 2011 at 02:17:18 PM EST

politicians when you haven't any money.
The tipping point in Iceland was one that our powers-that-be avoided by simply pretending that the losses and failures were covered by programs such as TARP - and by continuing to lend to those failed institutions without any restrictions or requirements on them even though they were bad bets.
So, basically, they can still buy politicians because the politicians gave them money and cover to do so.

That is a reality (5.00 / 0) (#2)
by Militarytracy on Thu Sep 01, 2011 at 11:11:47 AM EST

that many billionaires on paper are not going to agree to face

shared sacrifice starts with thee, not me. (5.00 / 1) (#4)
by observed on Thu Sep 01, 2011 at 11:58:23 AM EST

: Don't be goring my ox! (none / 0) (#5)
by Militarytracy on Thu Sep 01, 2011 at 12:07:40 PM EST

My very first government class, that was in high school, was taught by this retired old crusty Marine. And he spoke mostly about needed spending cuts...Jesus even way back then....and made reference to don't Gore my Ox mentality at least a thousand times if he did it once. I wonder, is that some old campaign slogan or something?

: And thus (none / 0) (#6)
by Zorba on Thu Sep 01, 2011 at 12:12:05 PM EST

it has always been......

There's not (5.00 / 2) (#3)
by Ga6thDem on Thu Sep 01, 2011 at 11:47:46 AM EST

the political will or political leadership in this country to do what is necessary to clean up the banks.

I think if people understood how the banks (none / 0) (#7)
by Militarytracy on Thu Sep 01, 2011 at 12:12:13 PM EST

are stealing their futures and damaging them and their ability to financially survive, they would be demanding it. It's a complex topic though. A leader would have to create transparency and care about teaching all of us the facts about what is happening within the big picture to us all, and then gather the strength to accomplish it. Nobody cares


It isn't really that complex. (none / 0) (#14)
by inclusiveheart on Thu Sep 01, 2011 at 02:20:30 PM EST

They like to say that a lot so that the average bear doesn't catch onto the scam. But the truth is that it isn't much more complex than your average shell game . A few shells and some sleight of hand and you have a scam that will keep people in the game until they lose their shirts or owe more than they are worth.


You don't think that the lack (none / 0) (#25)
by Militarytracy on Thu Sep 01, 2011 at 05:17:15 PM EST

of transparency in shadow banking keeps everyone confused? I do. You can't even get actual figures on anything that you can even trust out of the shadow banking system. You can't even know what shadow banking entity is loaning what other shadow banking entity what, and who is loaning it back to who in the system for what reasons and under what securitization.


I guess I don't think that it is (5.00 / 2) (#27)
by inclusiveheart on Thu Sep 01, 2011 at 05:27:55 PM EST

confusing because anything that is called "shadow banking" should pretty much immediately raise a red flag for one thing.

But what I was really saying is that all of these protestations that the money is or isn't there is so complicated that no one could possibly understand the equation is basically bs. You either have money or you don't and you either have real equity that might represent actual cash in a given market or you don't. Having seen houses in my neighborhood's values go from $150,000 to nearly or more than $1 million between 1996 and 2006 without the corresponding rise in wages is a clear indication that the housing market was a bunch of bs. People were not earning nearly eight to ten times what they were earning in 1996 by the time 2006 rolled around. They just had more credit - and the houses were that much more valuable intrinsically. Sure, they got new granite counter tops, but that's not worth a damn in a crisis as we have seen.

Anyway, pretty much what was happening was a shell game and that's not that complicated when you really think about it. If and when, everything becomes a diamond or pretends to hold the promise of a diamond in the rough that should yield diamond prices, you have to know that something is wrong - particularly when fewer and fewer people can even afford diamonds.


I don't think people understand (none / 0) (#35)
by Militarytracy on Thu Sep 01, 2011 at 07:29:11 PM EST

though what happens like say during QE2 or that they understand why banks no longer are interested in making money by loaning it to mainstreet and boring people like you and me and real small business owners to start up or expand. I don't think they understand how that money only falsely inflated the stock market as well and caused core inflation to increase, made those that were already rich richer and why, and how it is all making things even harder for them. And things will stay that way until literally there is another even worse crash because nobody will do anything other than maintain the status quo no matter how much it is hurting middle class and poor America.


: What people don't fully grasp is (none / 0) (#40)
by inclusiveheart on Fri Sep 02, 2011 at 07:20:00 AM EST

how dangerous this financial game of fantasy football is to them.

Nagahappa (5.00 / 1) (#8)
by smott on Thu Sep 01, 2011 at 12:39:03 PM EST

Lots of things work across the pond or elsewhere that have no chance in the US.

Not until there is a progressive president with a pair anyway.

Like I said, nagahappa....

And I recall that (none / 0) (#31)
by christinep on Thu Sep 01, 2011 at 06:54:11 PM EST

the situation in Iceland had deteriorated in terms of all individuals to such a point as to make what we confront(ed) somewhat routine. The Icelandic banks & their investments (as I recall) made the idiotic choices by the banking industry here seem wise.

The grass is greener???


Exactly what were the choices they made (none / 0) (#39)
by sj on Thu Sep 01, 2011 at 11:11:48 PM EST

that were so much more idiotic than our home-grown idiot bankers?


: They didn't buy enough people (5.00 / 1) (#41)
by MO Blue on Fri Sep 02, 2011 at 07:38:24 AM EST

in their government.

: They brought the government down (none / 0) (#42)
by christinep on Fri Sep 02, 2011 at 03:07:16 PM EST

and--this is only from memory--the sum total was turning one of the most prosperous countries & sought after destinations into one with extremely high, sudden unemployment (much more than even the unacceptable level here) & related higher crime rate. Sorry for lack of specifics...my recollection was based on the situation there that led a friend & I to reconsider/abandon a trip there (tourists advised due to resentment perceived in the populace as a result of the sudden collapse.)
The real trip-up for Iceland at the time appeared to have been the formal connection with the banks & the banks very heavy investment in the quixotic derivatives.
Look, I'm not defending the banks in our country. No way (please don't be so quick to judge me.) What my point is: Be cautious about looking some places for guidance that may have erred at levels previously unfathomed. (Other examples: Ireland, even the trusty-sounding Bank of Scotland, etc.) And, to go even further, think about the dilemmas faced in the broader EU context & exhibited this summer in Greece, Spain, Italy...and, now, maybe even Germany has a soft-financial-underbelly.
I don't pretend to know the parameters in this enmeshed financial mess. What I do discern tho is that 2011 seems to be showing financial vulnerabilities in a number of countries. And, for emphasis: That does not in any way whatsoever signal approval via "look they got it worse" comparison...all it says is that the grass is less green everywhere. For now.

It's a fairy tale (5.00 / 2) (#9)
by NYShooter on Thu Sep 01, 2011 at 12:46:59 PM EST

For the thousandth time we're told what should be done. It didn't work for the first 999, and it won't work now.

Who are the plaintiffs advocating for the changes needed?
Answer....nobody (or maybe some powerless pundits)

And who wants to maintain the status quo?

The President
The entire Republican Party
The majority of the Democratic Party
The Supreme Court, who may as well be listed as the Bank's Counsel.
The banks and Corporations.

Dream on....

I guess we're forgetting that we have (5.00 / 0) (#11)
by Anne on Thu Sep 01, 2011 at 01:42:46 PM EST

our own uniquely American way of doing things, and they almost never translate into policy that provides any benefits to the economy in general and the majority of Americans in particular.

The allegations in the Nevada AG's recent amended complaint against Bank of America raise the current "negotiations" for yet another settlement with the big banks - a settlement that has the full support of the president and Democrats like Tom Miller - to the level of aiding and abetting a criminal enterprise; it's stomach-turning.

Read the complaint here, and details/analysis here; I posted a portion of the NYT article about it in another thread.

Have a bucket handy; you'll need it.

Deck Chairs on the Titanic (5.00 / 1) (#17)
by Robot Porter on Thu Sep 01, 2011 at 03:03:59 PM EST

We really need to address the more central problem: If we want to continue our crude form of capitalism, a reliable means for the lower and middle classes to accrue capital must be devised.

Because incomes alone won't cut it as manufacturing jobs dry up completely (they are almost there already), and cheap labor overseas begins to evaporate.

Most Americans have zero net worth or worse. Despite the fact they've made hundreds of thousands of dollars in their lives. This is already untenable. But as cheap labor vanishes overseas it will become more so, eventually eliminating our first world status.

There are only two ways to avoid this: Massively expand the socialistic aspect of the government to the middle and lower classes(the rich already have full socialism) or you give them a reliable means of accruing capital. Economists will throw a lot of jargon at you. But it really comes down to these two solutions.

And since the first one ain't gonna happen. Maybe it's time to focus on the second one.

Too Corrupt (none / 0) (#10)
by cal1942 on Thu Sep 01, 2011 at 01:24:57 PM EST

In bed with the banks.

I wonder when the Eric Schneiderman scandal will break.

Between the Street, and the Cuomo and Obama Administrations does anyone think Schneiderman has a chance at continuing his political career.

: More on Obama's (none / 0) (#15)
by MO Blue on Thu Sep 01, 2011 at 02:28:11 PM EST

close ties to CEOs who firms dodge taxes.

I think (none / 0) (#12)
by CoralGables on Thu Sep 01, 2011 at 02:04:21 PM EST

Krugman needed to fill a few column inches this morning.

He's using for comparison purposes a country the size of Kentucky, that has a population the size of Corpus Christi, TX, the same number of banks as Rhode Island, has had a stock exchange only since 1985, and fails to mention their stock market fell 90% and their unemployment rate is still 5 times their national norm.

Sweden, France and Great Britain (5.00 / 1) (#24)
by MKS on Thu Sep 01, 2011 at 05:08:05 PM EST

are bigger than Iceland.....

As conservative boogeymen, they really don't scare me. I mean, if the U.S. descends into Socialism, we end up like them? That is the worst case scenario?

Conservative economics leads to a lot of wealthy people at the top and millions and millions and millions at the bottom.....Just like Third World dictatorships that have no goverment regulation and few taxes......

Bring on France.....


It seems to me (none / 0) (#18)
by sj on Thu Sep 01, 2011 at 03:18:12 PM EST

that your one sentence is chock full of talking points. Seven?

Yeah, I think it's seven. Quite an accomplishment, really. YMMV


Why thank you (none / 0) (#21)
by CoralGables on Thu Sep 01, 2011 at 03:31:55 PM EST

It took five minutes of research, about the same amount that went into the NY Times piece I think. With a graph accompaniment I could have used the same amount of space.


: Oh, I'm sure your statistics are accurate (none / 0) (#22)
by sj on Thu Sep 01, 2011 at 03:42:35 PM EST

I never doubted that. But you've managed to hide the forest behind the trees.

And, the whole government fell (none / 0) (#32)
by christinep on Thu Sep 01, 2011 at 06:56:18 PM EST

Maybe it can work here (none / 0) (#16)
by Edger on Thu Sep 01, 2011 at 02:48:44 PM EST

After everything collapses first.

A (safe, I think) prediction: Until then fantasy and delusion will continue to dominate.

Perhaps (none / 0) (#20)
by CoralGables on Thu Sep 01, 2011 at 03:25:16 PM EST

Iceland now has a BBB- rating from S&P. Moody's I believe has them pegged at Baa3 which is the lowest non junk rating they have. To hit the mark Iceland achieved the Dow would have to drop 10,000 points from where it is today. Hoover would look like a hero under that scenario.

For Iceland, there is nowhere to go but up.


Good for Moody's (5.00 / 1) (#23)
by Edger on Thu Sep 01, 2011 at 04:24:15 PM EST

WASHINGTON -- As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.
A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.
Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."
How Moody's sold its ratings - and sold out investors
Kevin G. Hall | McClatchy Newspapers
last updated: April 12, 2010

True (none / 0) (#26)
by CoralGables on Thu Sep 01, 2011 at 05:22:47 PM EST

They also had Iceland as AAA before their amazing meltdown.


Yes... at this point (none / 0) (#30)
by Edger on Thu Sep 01, 2011 at 06:40:24 PM EST

I think maybe it's best to take anything Moody's says the same way I take anything most politicians say.

The opposite is the probable truth.


So...like the far right...fact is what each person (1.50 / 2) (#33)
by christinep on Thu Sep 01, 2011 at 06:58:56 PM EST

decides to believe. We don't like them, we don't believe them. This could get interesting.


: No (2.00 / 1) (#36)
by Big Tent Democrat on Thu Sep 01, 2011 at 09:02:39 PM EST

Their assessments are worthless is the point.
Your comment makes no sense Christine.
Does the fact they are wrong about everything have bi effect on your faith in them?

: No (none / 0) (#34)
by Edger on Thu Sep 01, 2011 at 07:10:06 PM EST

Their actions speak louder. Their past history is not something to be ignored.

Value (none / 0) (#19)
by koshembos on Thu Sep 01, 2011 at 03:22:00 PM EST

A nation has a finger long enough to match the banks. Our administration seems to be fingerless.

The miracle? (none / 0) (#38)
by Mr Natural on Thu Sep 01, 2011 at 09:09:59 PM EST

came too late for a British acquaintance of mine. She had her money, all of it, parked in a nominally British bank located offshore. As an ex-pat she was not permitted to bank in Britain proper, something to do with money laundering tom-foolery, although she had paid British Income taxes all her life. What had been an offshore (island) bank was bought, sans name change, by those greedy a$$e$ in Iceland. She lost half a million pounds. After all the smoke cleared, only 50,000 pounds was guaranteed.