I scream, you scream, we all scream for Icesave!

by Daniel on January 7, 2010

Iceland has a population of about 300,000 , about 140,000 taxpayers and pre-crisis GDP of about $12bn. The Royal Bank of Scotland has about 140,000 employees and pre-crisis net profit of about £8.5bn – they’re about the same size as entities. Iceland, like RBS, did very well out of the debt bubble and picked up assets all over the world in an impressive but ultimately unsustainable spending spree. And in a final point of similarity, Iceland, like RBS, owes the British government a hell of a lot of money as a result of the bursting of the bubble.

On the other hand, if Sir Fred Goodwin, the deposed former CEO of RBS, were to suddenly announce that repaying the government’s capital injections was far too onerous a burden and jeopardised RBS’s ability to pay bonuses (particularly given that the majority of RBS employees had very little involvement in the decisions which caused the bubble, and only a very few of them actually directly benefited from the huge profits made), and that there should be a referendum of RBS employees as to whether or not to repudiate their bailout obligations, I sincerely doubt whether there would be all that many blog posts saying “Well Done RBS For Standing Up To The Bullies”.

And that is effectively what has happened here; people seem to have fit this into a template of LDC debt defaults, or presumed that because the UK used powers under its Terrorism Act (which is an unreasonably draconian Act, but the actual goal of preventing a bankrupt debtor from shifting assets out of the country is hardly an intrinsically illegitimate one), it must have been bullying or acting illegitimately. In fact, the timeline is roughly as ajay describes it in comments to John Band’s post on the subject, which I plagiarised and tidied up for my own blog.

Basically, a neoliberal government encouraged the financial sector boom in Iceland (there were plenty of other political parties which thought that the increasing dependence on banking was a bad idea; they didn’t get votes) and provided a deposit guarantee scheme which allowed Landsbanki to raise deposits in the UK. When the balloon went up, the Icelandic government assured the British (and Dutch) governments that the deposits were guaranteed, and on this basis, the Brits and Netherlanders paid depositors out of their local schemes (for speed and convenience), on the understanding that the debt would be collected later. After a number of pretty shoddy corporate finance moves aimed at trying to wriggle out of this debt, the neoliberal government collapsed and a new government came in.

That government (partly under the influence of the IMF, which in general takes a dim view of OECD debtors who try to selectively default and stiff major trading partners, on the basis that one really can’t be seen to encourage that sort of thing) recognised the debt as a legitimate one and started negotiating repayment terms. After a certain amount of squabbling, an arrangement was reached which was both satisfactory to the creditors and able to get through the Icelandic Parliament. This is the bill which President Grimsson has just vetoed, sending it to the referendum. The Presidential veto is a very unusual device in Icelandic politics – since the beginning of the current constitution in 1944, it has been used precisely once, in 2004, by Grimsson, to veto a bill which would have prevented a member of his own political party from establishing a media monopoly, the existence of which media monopoly presumably is not totally irrelevant to the widespread popular support for what would otherwise look like a fairly venial attempt by a discredited former government to throw a spanner in the works of their successors’ attempts to dig the country out of the mess they created, massively damaging their international credibility in the process.

Basically, if you think Californian budgetary politics are all screwed up and held to ransom by a bunch of wildly irresponsible rightwingers who want to blame everyone but themselves, take a look at Iceland – you’re gonna love it.

{ 210 comments }

1

ejh 01.07.10 at 10:14 pm

people seem to have fit this into a template of LDC debt defaults, or presumed that because the UK used powers under its Terrorism Act (which is an unreasonably draconian Act, but the actual goal of preventing a bankrupt debtor from shifting assets out of the country is hardly an intrinsically illegitimate one), it must have been bullying or acting illegitimately.

Was it not, then?

2

will u. 01.07.10 at 10:15 pm

The Icelandic collapse reminded me of the end of Laxness’ “Independent People”: the flinty-if-blockheaded crofter Bjartur finally indulges during a WWI-driven commodity boom and commits the little pelf he accumulated over the preceding 500 pp. of winter weather and sheep disease to build a nice house for his daughter. The bubble pops, the house turns out to be shoddy, and Bjartur is left a penniless crofter again. So my question is: Did the common Icelander benefit from the bubble much more than a dog benefits from the table scraps when the meal is rich? How is what I’ve read is a 12,000 euro/head liability going to be distributed amongst the population? Squeeze the “Viking” bankers, surely; but do we need to drive a generation into penury?

(Also, if we’re going to play the they-voted-for-Independence-Party-after-all game; well, the US public voted for Bush II, the Palestinians for Hamas…)

3

roac 01.07.10 at 10:15 pm

No such person as “President Grimsson.” The guy’s name is Ólafur Ragnar, and the Grimsson is tacked on to identify him as the Ólafur Ragnar whose father was named Grim, to distinguish him from some other Ólafur Ragnar whose father was named (say) Aðalsteinn. The two of them would be nearby in the phone book (there’s one for the whole country, and the President’s home number is in it or used to be) — like this:

Ólafur Ragnar Aðalsteinn Cabdriver Akureyri . . . [number]

Ólafur Ragnar Grimsson President Reykjavik. . . [number]

Yes, the phone number is organized by first name, because that’s the only name most people have.

Now, anyone have anything to say on the merits?

4

roac 01.07.10 at 10:18 pm

“Ólafur Ragnar Aðalsteinnsson.” Arrgh.

5

dsquared 01.07.10 at 10:21 pm

#1 : as I think I said on AW but in retrospect was not the model of clarity I thought myself to have been, the UK was pursuing a totally legitimate aim via illegitimate legal means

6

dsquared 01.07.10 at 10:26 pm

actually scratch that – the powers themselves are not particularly objectionable – what is at the root of my unhappiness with the whole situation was that they’d been folded into an unrelated bill with no real Parliamentary scrutiny.

7

Walt 01.07.10 at 10:46 pm

I think the pro-Iceland reaction is purely at the level of class identification, rather than any sense of right and wrong. The sensation of being stuck with a large bill because of the actions of some bankers is a familiar one these days.

8

stostosto 01.07.10 at 10:50 pm

DD: On your blog you remark that Iceland is “notorious in the Nordic region for being a boastful little country with a selfish streak a mile wide”. As a Dane I have to say that is news to me. To me personally, Iceland isn’t the slightest bit notorious for anything whatsoever. Except, perhaps, for geysers and those cute little horses that walk in odd ways.

9

Richard J 01.07.10 at 11:17 pm

D^2 – Did you see this comment on CiF? As Steve Hill is a former insolvency partner at PwC, it’s a fairly good bet he knows what he’s talking about iro the precise legal specifics.

stevehill

The UK government lost any right to take the moral high-ground here when it invoked the anti-terror legislation

Can we please slay this myth forever? We used a civil remedy once called a Mareva injunction (named after a test case), later called a freezing order (with no ironic intent!), and formalised in an Act of Parliament updating a whole hotchpotch of laws which happened, amongst words like crime and security, to include the word terrorism in its title because a small part of that act was also about terrorism.

Even without that act, faced with David Oddsson’s unilateral opting out of international law on broadcast TV, not only the British government but any single Icesave depositor would have been fully entitled under UK law, in the UK, to get a good old fashioned Mareva injunction to prevent Iceland moving assets currently held in the UK to Iceland to serve its (wholly illegal) intention to repay Iceland depositors in preference to others.

Had the buffoon Oddsson troubled to so much as phone a UK banking lawyer for 5 minutes before making his irresponsible statement, he would have been told these were the inevitable consequences. And they are the right consequences: the assets these banks held in the UK are the assets put there by British depositors.

Iceland was trying to do a moonlight flit and leave the creditors whistling. We stopped them doing so.

10

Brad9999 01.08.10 at 12:27 am

The comparison of bank employees to citizens hardly holds – I’m surprised you even attempted it. Certainly RBS can in no way attach their costs for repayment of the bailout personally to their employees – and even equity holders have limited liability. Governments are not corporations, and citizens are neither employees nor shareholders.

Turn the comparison around. What if the UK told all employees of RBS at the time that they as individuals were personally and collectively responsible for paying back the bailout funds given to the bank? They could decide amongst themselves how to divvy up the responsibility, but to the first order every employee would be assessed a personal debt of £550k (RBS bailout cost in the neighborhood of £80bn) and their (and their children’s and grandchildren’s!) paychecks would be garnished for the next 30 years to pay for it.

Would you blame anyone in that situation for refusing to pay?

11

christian h. 01.08.10 at 12:42 am

So I’m supposed to feel sorry for a thoroughly criminal government? I don’t think so. If you guys promise to pay any money you recover from Iceland as reparations to the people of Iraq, I might reconsider. (And yes I’d obviously say the same if it was the US being stiffed – in fact I encourage everyone to default on their obligations to the US of A.)

12

Maria 01.08.10 at 1:28 am

I’d like to think the blowback from the UK’s invoking terrorism legislation might give the Home Office pause the next time they hoover up every power they’ve wanted to have or that’s been chopped out of other bills and dump it into anti-terrorism legislation. I was around when the Anti-Terrorism, Crime and Security Act was flung together, and it was not pretty.

13

george matkov 01.08.10 at 1:50 am

After the breakup of Yugoslavia, Slovenian banks stiffed depositors from the other republics – they still haven’t reimbursed them twenty years later. In the meantime, Slovenia was welcomed into the EU with open arms. Stand tall Icelanders! Greedy western bankers will quickly forgive and forget and will be offering new loans by this time next year – just like they always have with all other sovereign defaulters over the years.

14

y81 01.08.10 at 2:35 am

“I encourage everyone to default on their obligations to the US of A.”

Ha ha, as a net debtor nation, we are immune to that kind of threat! Time for a worldwide Jubilee, I say.

15

P O'Neill 01.08.10 at 3:13 am

The calculation for Iceland gets a tad uglier when pre crisis exchange rate of 90/euro is set against current rate of 180/euro. That’s a transfer problem of original Keynesian proportions.

16

Alex 01.08.10 at 3:37 am

“So I’m supposed to feel sorry for a thoroughly criminal government?”

Wait, you think it’s the British Government that you’re supposed to feel sorry for? How about British taxpayers? Why would anyone expect you to feel sorry for a social construct (the government)?

17

John Quiggin 01.08.10 at 3:59 am

At least under the rules of the market system as it has prevailed for the last several decades, everything seems pretty clear. As debtors, the Icelanders should default if they think the penalty for doing so is less than the cost of repaying. As creditors, the UK and Netherlands should punish them to the point where the marginal cost equals the marginal extra repayment they can extract. Third parties like the IMF should do whatever is in their own best interests (in this case, probably, lining up with the UK & Dutch). And everyone should expect that, if the roles are reversed at some point in the future, the lines (Interesting FS – I managed to type ‘liens’) will remain the same.

Of course, we are all free to cheer for Team Blue (Creditors) or Team Red (Defaulters) if we want. But it’s just as much fun to enjoy the game as a pure spectator.

18

Jacob Marley 01.08.10 at 4:15 am

You all seem to be assuming that Icelandic voters are about to make a choice between (a) dutifully, though perhaps resentfully, paying the money that the UK and the Netherlands are demanding, or (b) bravely, though perhaps foolishly, refusing to. However, as the President of Iceland stated when vetoing the latest Bill and putting the referendum process in motion (as officially translated at english.forseti.is):
“If the Act is approved in the referendum, then naturally it will remain in force. If the referendum goes the other way, then the Act No. 96/2009, which the Althingi passed on 28 August [2009], on the basis of the agreement with the Governments of the United Kingdom and the Netherlands, will continue to be law, recognising that the people of Iceland acknowledge their obligations.”
So the choice is not whether to pay the money, but how, and under which bit of the agreement, which, by the way, is an international legal instrument and would be hard for any government anywhere to wriggle out of. It’s therefore difficult to see the point of all these articles, blog posts and comments written as if anything else might happen (apart from the entertainment value, which is not to be sniffed at).

19

Maria 01.08.10 at 4:49 am

John – and presumably part of everyone’s calculus is not wanting a pattern of default to emerge more generally, regardless of which side they’re on this time.

george matkov – the early 90s Slovenia example isn’t relevant. Iceland had to abide by EU rules and backstop its funds in order to be allowed to do business with European consumers.

20

Caine 01.08.10 at 6:27 am

Gotta say thanks for this article Daniel, as I was surfing around blogs yesterday wondering why all these people were standing up for the little guy, even when the little guy was acting like a greedy little douchebag. Nice to read a sane opinion on the topic.

21

ejh 01.08.10 at 8:26 am

Parliament updating a whole hotchpotch of laws which happened, amongst words like crime and security, to include the word terrorism in its title because a small part of that act was also about terrorism.

This is bullshit. You don’t give an Act of Parliament a name because of some “small part” of it. You especially don’t do so when you’re thinking of a word like “terrorism”.

#10 – quite.

22

alex 01.08.10 at 8:27 am

Clearly any so-called ‘country’ with a six-figure population isn’t in a position to maintain its sovereignty except at the sufferance of its larger neighbours. Since many of these so-called ‘countries’ are corrupt tax-havens, maybe something useful could be done with military force for a change? After all, sooner or later we’re bound to pick on one so small that the invasion actually succeeds.

23

JoB 01.08.10 at 8:50 am

Disconcertingly, I find myself again agreeing with somebody, not finding any contrary views at all. They boomed, they busted, they have to pay up – even if the marketng machine spins us this view of Icelanders having warped somehow in a sub-zero Middle African state.

Nobody says every citizen should bear the same burden. Nobody even says that most should be bearing any burden. Hell, maybe they should sue for damages the non-Icelanders that were also active in Icesave (persons and institutions). But they have to pay up.

If they don’t, every small community can go and be financial haven for a while. They just would have to keep the pictures from “before” such that after the bust they can see with their own eyes that “after” the bust is still better than before the con.

24

JoB 01.08.10 at 9:00 am

10- Clearly you’re not one of the many employees of RBS that is or will soon get fired.

25

ejh 01.08.10 at 9:06 am

They boomed, they busted, they have to pay up

What does this mean? The point at issue is that they’re being expected to pay up, big time, for dets that they didn’t actually incur. Somebody else gambled with somebody else’s money, and now Icelanders are being told that it’s their bill – their very substantial bill – to pick up. Oh, and that there are “no contrary views at all” to be found on this.

26

meno 01.08.10 at 9:08 am

This blog post is very misleading.

1) The Icelanders aren’t debtors. An Icelandic bank is a debtor. The UK is insisting that the Icelandic do a govt bail-out on Icelands banks. If they do so *then* the Icelanders will be debtors.

2) The “International Law” you refer is actually an EU regulation 94/19/EC. Iceland disputes the UK’s interpretation of that regulation and wanted the issue referred to the EFTA court (in particular, their claim is that they’d set up a deposit-guarantee fund and were transparent about it’s assets as the EU regulation required, and that the were not obliged under EU regulations to then assume liability above and beyond that if that fund turned out to be insufficient – and while I’m no lawyer that does seem a reasonable reading of section 24 of the relevant EU regulations). The UK replied to that request to take this to the EU court by classifying the govt of the Republic of Iceland as a terrorist organisation and freezing their assets. Ya don’t win friend that way.

3) Whether or not EU regulations do make the Republic of Iceland liable for these debts, there’s another billion pounds of local council deposits which the EU regulations explicitly exclude from the deposit guarantee requirements. The UK want that paid back too. That’s just unreasonable: these are big organisations that made stupid calls in how to invest their dosh, welcome to the free market kiddies.

27

Zamfir 01.08.10 at 9:15 am

But ejh, their democratically chosen government repeatedly affirmed they would pick up the bill if left on the table by the gamblers. The orginal EEA treaty that made that point might have been obscure to most icelanders, but the reaffirmations once the banks were crashing (when the UK and Dutch offered to advance the money, later when the IMF offered loans) were major events in Iceland, of which the entire country was aware.

By not vetoing and not demanding referenda then, the Icelandic voters lost the claim that it all happened behind their backs.

28

ejh 01.08.10 at 9:18 am

The orginal EEA treaty that made that point might have been obscure to most icelanders, but the reaffirmations once the banks were crashing (when the UK and Dutch offered to advance the money, later when the IMF offered loans) were major events in Iceland, of which the entire country was aware.

By not vetoing and not demanding referenda then, the Icelandic voters lost the claim that it all happened behind their backs.

Right, but the key phrase in here is “once the banks were crashing”, in other words when it was too late. When it had already happened, behind people’s backs.

29

Zamfir 01.08.10 at 9:23 am

EDIT. Not that I would blame, in some ethical sense, the Icelanders when they refuse to pay. But it will mean a transfer from their unwanted tax burden to my Dutch unwanted tax burden, and I don’t see how I am particularly less deserving of that money.

30

dsquared 01.08.10 at 9:24 am

The point at issue is that they’re being expected to pay up, big time, for dets that they didn’t actually incur

the idea that a democratically elected government isn’t entitled to incur debts on behalf of its population is a very purist anarchist point of view indeed and I don’t believe that many people in Iceland believed it before last year. And the liability in question was a precondition for international expansion of the Icelandic banking system, which was a very, very popular policy in Iceland.

31

dsquared 01.08.10 at 9:31 am

They could decide amongst themselves how to divvy up the responsibility, but to the first order every employee would be assessed a personal debt of £550k (RBS bailout cost in the neighborhood of £80bn)

Since the total cost of the bailout is currently estimated at £10bn, that’s quite a big neighbourhood.

32

JoB 01.08.10 at 9:33 am

ejh, slow down there: I said I did not find contrary views. & I am indeed with your view at a loss. I mean it’s not that the citizens didn’t profit from the boom. It’s not that they didn’t vote for this policy that led to both boom & bust. Or do you think that mysteriously all Icelanders have been picked up by aliens and replaced by people that, whilst innocent, happened to pick up life styles that are still vastly better than before the neoliberal policies took hold.

And again: not all citizens need to pay, just like not all RBS employees should pay but the global institution should remain accountable.

What you’re going in for is the idea that this accountability must weigh on ALL citizens – and this is exactly what the rich citizens of Iceland want you to believe in order for THEM to be spared a tax on their estates.

33

Henri Vieuxtemps 01.08.10 at 9:35 am

ejh, Somebody else gambled with somebody else’s money, and now Icelanders are being told that it’s their bill – their very substantial bill – to pick up.

Suppose I’m a gambler, I take a large loan and lose it all. What should happen to my children’s college fund? Will they be able to continue going to expensive private schools?

I mean, it’s unfortunate, but this is what happens; shit happens, no?

34

ejh 01.08.10 at 9:35 am

When you say “the rich citizens of Iceland”, do you mean “those citizens of Iceland who are rich” or “the citizens of Iceland, who are rich”?

35

ejh 01.08.10 at 9:38 am

Suppose I’m a gambler, I take a large loan and lose it all. What should happen to my children’s college fund? Will they be able to continue going to expensive private school?

It’s a specious comparison on more grounds than one. First, we’re not talking about maintaning some sort of luxury item like expensive priavate schooling, and secondly, the connection between you and your children is not only far closer but very different in kind to that between citizens of a country and a bank operating therein. As you surely know.

36

a.y. mous 01.08.10 at 9:38 am

The comments here remind me of a set of comments here in the GFC threads on executive bonuses . The “Heads I win, tails you lose.” sentiment is wrong whether expressed by greedy risk taking masters of the universe financial types or by the electorate of a liberal democracy.

37

alex 01.08.10 at 9:39 am

Icelanders are certainly rich, against a global average.

38

Henri Vieuxtemps 01.08.10 at 9:48 am

The connection between me and my children is different, but still: they will suffer for no fault of their own. Of course they shouldn’t starve (as I assume no one in Iceland will starve), but their savings are gone and their lifestyle will certainly change. Because of what someone else did. Such is life.

39

JoB 01.08.10 at 9:54 am

31- I meant “the rich citizens of Iceland” i.e. the subset of citizens of Iceland that are rich to the standards of Iceland. Nobody says each citizen should pay a proportional share of the burden.

That being said: Alex@34 as well. The ‘innocence’ of the many argument is laughable.

40

bc 01.08.10 at 10:18 am

The problem is that iceland is small, therefore people have some instinctive sympathy for it. They can’t imagine that far from the banks operating “behind people’s backs”, the whole boom was out in the open and had very high “buy in” from these arran-jumper clad plucky icelanders. Consider the huge levels of personal indebtedness of the icelanders – it all comes to more than double those levels in the US (per cap) because normal icelandics were greedily speculating and loaning, aided and abetted by their banks.

If it was the US being pressed to live up to its legal obligations this sympathy wouldn’t exist.

An amusing overview of how much Iceland bought in can be found here.

If you ask me Icelanders are born front office types. They are arrogant and aggressive, if you walk down the street in Rejkavik the men will bodycheck you constantly rather than be polite – walking down a Rejkavik street reminded me of walking through Citigroup’s trading floors some years ago.

Their only problem was a completely lack of experience or education in the field – they certainly had the personality for it.

41

ajay 01.08.10 at 10:21 am

Not that I would blame, in some ethical sense, the Icelanders when they refuse to pay. But it will mean a transfer from their unwanted tax burden to my Dutch unwanted tax burden, and I don’t see how I am particularly less deserving of that money.

Zamfir makes a good point, especially if you reframe it as “should two very rich countries, the UK and the Netherlands, give a huge amount of money to a third very rich country, Iceland, with no strings attached, not in order to ward off starvation or disease or disaster or foreign invasion but simply because the Icelanders would rather like to have it?”

42

ejh 01.08.10 at 10:39 am

Another view would be: some people have to pay off their debts, other people have to pay off other people’s debts, some people don’t actually have to pay off their debts at all but can write them off if they haven’t got the money right now, as actually happens all the time in business, something all the people attacking the Icelanders know damned well.

As for the “very rich country” argument, this would hold more water if somebody could demonstrate that the effects of these repayments will be limited to people who can be so described, and won’t affect, for instance, poorer Icelanders or the services on which they depend.

Which of course, they will. Now if people want to argue that these debts have to be paid by the Icelanders, that’s fine: I think their case is strong. But what I find objectionable is the attitude, the attacks on Icelanders as Icelanders, the deliberate eliding of the difference between a wealthy society and the individual people within it, the claim that Icelanders necessarily knew what was going on (unlike the financially-advised people who actually made these risky investments?) and the assumption that there’s a responsibility to pay other people’s debts when we know very well that many people, including wealthy people, don’t have to pay debts they themselves have incurred.

43

JoB 01.08.10 at 10:47 am

They traded – as did the Irish and so many more ‘supercompetitive nations’ – long term risk for short term gains. In doing so they eroded the systems of ‘Old Europe’ noncompetitive nations – and the suffering of the poor in those nations is real. They did this knowingly believing that this system of theirs was better than those systems of days gone past. Leaving that as is – as ‘amused bystanders’ – is the worst thing anybody can do with half a sense of reducing unfairness.

It’s comical that lots of people on the left go in for the nimble footwork in anagramating Icesave in save Ice(land). The right wing always tries to do us in with David/Goliath metaphors but what Iceland was – and still is – is Goliath, unrepentantly waiting for ‘when’ the good days come back – just like the majority of non-surplus RBS managerial staff which is positioning itself for the next wave of golden showers upon those that ‘work the hardest’.

44

JoB 01.08.10 at 10:51 am

40- fair enough if that’s your point, I don’t see any genetical or cultural predisposition – it could have happened in zillions of other countries (and in fact did happen).

That being said: Iceland is a democracy so it’s up to them to determine how the burden will have to be distributed. Non-Icelanders should not feel guilty if htey don’t succeed in distributing that burden fairly.

Also: they don’t just want to default – they want to default AND get assistance from others not to have to feel the pain of defaulting.

45

ajay 01.08.10 at 11:00 am

the claim that Icelanders necessarily knew what was going on (unlike the financially-advised people who actually made these risky investments?)

A lot of Icesave depositors were perfectly ordinary Brits. There’s no real reason to suppose that they should have been any more aware of “what was going on” than the Icelanders – the reverse, if anything.

Also, your point that “some people don’t actually have to pay off their debts at all but can write them off if they haven’t got the money right now, as actually happens all the time in business” is very true. The Icelanders don’t have to pay their debts. Similarly, we don’t have to lend them any money ever again. Neither does the IMF. We certainly don’t have to let them into the EU, nor do we have to give a toss as the country deteriorates into a sort of deep-frozen Ballardian post-collapse dystopian state smelling strongly of mackerel.

46

ejh 01.08.10 at 11:04 am

nor do we have to give a toss as the country deteriorates into a sort of deep-frozen Ballardian post-collapse dystopian state smelling strongly of mackerel.

Christ.

47

dsquared 01.08.10 at 11:06 am

some people don’t actually have to pay off their debts at all but can write them off if they haven’t got the money right now

yes, and those people are called “undischarged bankrupts”, and they find it difficult to borrow money for a while. Iceland doesn’t want to default on its debts (proof – it has passed two bills saying it’s going to pay them and the President who vetoed the bill nonetheless says that he in some metaphysical sense wants Iceland to pay its debts). What it wants is for those debts to go away as if they never existed – ie, they’re specifically saying that they ought to be given a present, some of the cost of which will doubtless fall on the genuinely poor of the UK and the Netherlands, who are both more numerous and poorer than the poor of Iceland.

48

ajay 01.08.10 at 11:10 am

44: it should be clear that there is a very strong “but we/they ought to” attached to all those things that we/they don’t have to do.

49

ejh 01.08.10 at 11:13 am

I think the phrase I highlighted should not have been used. Pity’s sake, “smelling strongly of mackerel”?

50

dsquared 01.08.10 at 11:15 am

Iceland smells strongly of sulphur, not mackerel, I think. But the point Ajay’s making is that Iceland isn’t trying to default on its debts (which might be the right thing for it to do if they’re too onerous to pay and I’d support them in that decision). It’s trying to pretend that the debts never existed, or that they weren’t really obligations of the Icelandic state, or that it was totally OK for them to selectively nationalise Landsbanki (assuming only the liabilities of the Icelandic branches) having signed treaties not to carry out this sort of discriminatory measure and raised significant amounts of money on that basis. They want to make the Icesave liability disappear and go on without a stain on their record as if they’d always paid everything in full. It’s clear that the UK and Netherlands (both of which have a very good record in terms of providing debt forgiveness for actually poor countries; Gordon Brown’s probably achieved more in this regard than any other politician ever) can’t be expected to tolerate this bullshit.

51

dsquared 01.08.10 at 11:27 am

(note above that #24 is apparently what is being published in the Icelandic press and it is 100% wrong. On 1), the Icesave liability has been agreed by all parties to be an obligation of the Icelandic government. On 2a), the Icelandic government were offered the chance to take the whole matter to court but refused because a court would quite likely have ruled that their selective nationalisation of Landsbanki was illegal, which would indeed leave them on the hook for the local authority deposits (which the UK is not pursuing, 3) is wrong too) rather than just the deposit compensation paid by UK and Netherlands. The UK refused to let Iceland selectively take the strongest parts of their case to court and leave all the rest to be settled by arbitration and negotiation, because this was transparently a dishonest ploy. And 2b) is also wrong as explained above, the powers used had been (for very crappy reasons of UK politics) placed in the Terrorist Act, but they existed independently and were exercised because the Icelandic central bank governor (Oddson) had announced on television that he was going to shift assets from the UK operations back to Rekjavik in order to selectively repay Icelandic depositors.

In general, the amount of fibbing and hustling that the (previous) Icelandic government has tried to do in the course of these negotations has seriously damaged their ability to deal credibly with the rest of the world, and Grimsson’s decision to insert himself into the process even after his party got voted out of government has continued to further damage the Sigmundsdottir administration that got the job of clearing up the messes that the neoliberals created. As I say, nobody has been designated a terrorist organisation, but in all honesty, if the Independence Party had been run by fanatical anti-Viking ideologues determined to destroy Iceland as a country, it is difficult to see what they would have done differently.

52

alex 01.08.10 at 11:27 am

From the VF article: “a nation of extremely well-to-do (No. 1 in the United Nations’ 2008 Human Development Index), well-educated, historically rational human beings who had organized themselves to commit one of the single greatest acts of madness in financial history. “You have to understand,” he told me, “Iceland is no longer a country. It is a hedge fund.””

If that’s even half-true, fuck ’em, send in the tanks.

53

dsquared 01.08.10 at 11:29 am

#50: In fairness, that is a) Michael Lewis, quoting b) an IMF official. Once you’ve applied the relevant discount factors and allowed for the correlation between them, “even half-true” is right out in the tail of the distribution.

54

Alex 01.08.10 at 11:38 am

deliberate eliding of the difference between a wealthy society and the individual people within it

Indeed. It’s silly to treat the government’s debt as if it was divvied up into individual overdrafts for every citizen; you will note that it’s a typical rhetorical trick used by rather unpleasant rightwing people all the damn time.

Also, if you’re an actual Icelander, the most likely way in which your life has been affected by the crisis is that any foreign-currency personal loans you took out have got very expensive. Unlike the Icesave money, you are indeed personally responsible for those. So were the Icelandic banks that handed them out like sweets, of course.

The trick was that you could borrow yen, chiefly, at very low rates, and lend them out at rates that were close to consumer credit rates but attractively low – you get your turn, so-and-so buys (typically) a huge car, and this works fine until the exchange rate shifts, at which point all hell breaks loose – so-and-so’s repayments go through the roof, 50% of the so-and-sos declare personal bankruptcy and write off their debts, and then the bank goes bankrupt.

55

Tim Worstall 01.08.10 at 11:41 am

“It’s trying to pretend that the debts never existed, or that they weren’t really obligations of the Icelandic state, or that it was totally OK for them to selectively nationalise Landsbanki (assuming only the liabilities of the Icelandic branches) having signed treaties not to carry out this sort of discriminatory measure and raised significant amounts of money on that basis.”

I’m still finding this all very confusing (yes, cue joke here, Worstall finds everything terribly confusing).

There’s the EFTA or EEA (whichever) rules about €21k deposit insurance. Can’t see that there’s any way out of that other than sovereign default (which has been done many times by many countries and has sometimes been cheered when done: Argentina and Ecuador in recent years come to mind). From what I’ve been able to glean the cost of this re Icesave is some £800 million or so.

Then there are two further sums.

1) The gap between that €21k and the UK’s at the time standard deposit insurance of 90% of up to about £32 k.

2) Making all of the depositors whole.

1) and 2) added together plus the original £800 million give is the demanded figure of £2.3 billion (or whatever it is).

Those two latter aren’t quite as slam dunks as strictly legal liabilities as the first sum. We’ve all seen quite enough examples of governments promising things to various people at various times (asset confiscation laws or terrorist laws will only be used in extremis, those with nothing to hide have nothing to fear, all the guys at Guanatanamo really are terrorists, sure, we’ll pay you.) only for us all to find out that’s not really enforceable. Heck, the current UK Government is the one that argued in court that election manifesto promises are not legally enforceable.

I’m not wholly convinced that we should all be expecting some bunch of Vikings out in the North Sea to hold their government to a higher moral standard about government promises than we hold our own really.

56

dsquared 01.08.10 at 12:02 pm

Am I really reduced to explaining things to Worstall? I suppose so – I have flu.

1) Iceland nationalised Landsbanki. Therefore in principle the starting point would be that all of the liabilities of Landsbanki, wholesale deposits, local authorities and all, would become liabilities of the Icelandic sovereign.

2) When Iceland nationalised Landsbanki, it did so by creating a company called Nyi Landsbanki. This company intended to take over all the assets of Landsbanki, but only to assume the liabilities of those branches which were physically located in Iceland. Because the UK quickly realised what was going on and used the well-known terrorisses powers oh noes, it actually ended up only owning those assets which weren’t quickly frozen by the British and Dutch authorities, but this is pretty much by the by.

3) The legal move in (2) is really very dodgy under the EEA treaties because it’s discriminatory treatment. Iceland tried to do it because the alternative (putting Landsbanki into insolvency) would have quickly bankrupted the Icelandic deposit insurance system, meaning that Icelandic depositors would have lost money, and of course that depositors of Kaupthing, Glitnir et al were uninsured. In other words, they did it in order to try and forestall a general bank run on deposits in Iceland.

4) But, in the knowledge that this was a very dodgy legal move (and that their explanation that it was not discriminatory on grounds of nationality, just the “objective” criterion of branch location was unlikely to pass a laugh test), the Icelanders cut a deal with the UK and Netherlands. This was back in the days when the Icelandic government was regarded as being at least potentially trustworthy.

5) The structure of said deal was that the UK and Netherlands would compensate Icesave account holders from their own deposit insurance schemes and Iceland would pay the money back later, from the assets of Landsbanki which at the time Iceland asserted to be solvent.

6) I now have to make a slight adjustment to the timeline, because all this happened so quickly that it gets very confusing if you go through it in chronological rather than logical order. I said that Iceland nationalised Landsbanki into Nyi Landsbanki in steps 1) and 2). Actually they only did this now. Up until shortly after the deal was concluded, they had been telling everyone (almost certainly knowing the opposite to be the case) that Landsbankin was solvent and would remain trading, and that Iceland would guarantee its liabilities on a going concern basis. But this just complicates the story so ignore it, except to keep it in mind as one of the several ways in which Oddson managed to screw his credibility.

57

James Conran 01.08.10 at 12:24 pm

” Iceland nationalised Landsbanki. Therefore in principle the starting point would be that all of the liabilities of Landsbanki… would become liabilities of the Icelandic sovereign.”

Leaving aside the specifics of the Icelandic case, is this always and necessarily the case? Could a government not retain the same limited liability as private shareholders in relation to a nationalised bank? I have wondered about this point in relation to debates over nationalisation in Ireland.

58

Tim Worstall 01.08.10 at 12:24 pm

“I said that Iceland nationalised Landsbanki into Nyi Landsbanki in steps 1) and 2). Actually they only did this now.”

So the legal situation is that they owed the €21 k per account plus whatever promises they made during the crisis?

And government promises are worth?

59

JoB 01.08.10 at 12:25 pm

Alex-52, that is actually not silly at all. They majoritarily chose a path that benefited them – and now they are sulkingly putting their fingers in their mouths saying: “the bad people is not us.” & you’re having it, including the pity on people for being already punished taking out loans on the second 4*4, the one adapted to the city life style.

The distinction is this: there is nothing wrong with Icelanders but they did something wrong and they should live up to the consequences of their actions. They should do this fairly – with as less punishment for the weak as possible. This means accepting the IMF, Scandinavian and EU help; which in turn means honouring their accountability in Icesave and like; which in turn means the rich will probably have to pay an estate tax that is unseen in the West – instead of paying for this spin in an attempt to let them off the hook. And do it again.

60

Ray 01.08.10 at 12:28 pm

well, isn’t that the question?

How much is the promise of the Icelandic government worth? If it is worth a lot, then the credit terms available should be good. If worth only a little, then not so good.

61

dsquared 01.08.10 at 12:30 pm

Could a government not retain the same limited liability as private shareholders in relation to a nationalised bank?

In principle they could but:

1) not necessarily under some European constitutions where principles of Anstaltlast effectively oblige the sovereign to run all its corporate bodies on a solvent basis

2) nearly always, when a government nationalises a bank it also guarantees that bank’s liabilities because otherwise what’s the point.

and moving on to Wrongstall:

So the legal situation is that they owed the €21 k per account plus whatever promises they made during the crisis?

No. The deposit insurance fund owed the EUR21k, not the Icelandic government and there is a whole load of red-herring argumentation about whether the sovereign guaranteed the liabilities of the deposit insurance fund. But this is by the by because they did make a promise, and a government promise is worth what you can get for it, depending on whether the government’s breach of that promise is regarded as tantamount to a default on debt.

62

JoB 01.08.10 at 12:42 pm

What is it with the Tim’s of this world that haunts them into making self-reflexive comments?

63

Matt 01.08.10 at 12:42 pm

So the legal situation is that they owed the €21 k per account plus whatever promises they made during the crisis?
And government promises are worth?

Well, if they just refuse to pay it back, I don’t think that the UK is going to invade or blockade them. But they will, rightfully, try to seize assets when they can, get liens on assets and lines of credit, and others would be heavily discouraged from lending to Iceland at affordable rates. This seems to be pretty much what’s happening. Surely you don’ t think the UK should say, “well, after all, it was a government that made these contracts and promises with us, so I guess we’re just screwed.” They might be screwed in the end, but surely the UK doesn’t, and shouldn’t, have to just roll over.

64

Tomas 01.08.10 at 12:47 pm

Of course you could do a limited liability nationalization. Just buy up the shares. Now you have a goverment owned company with tons of debt. However this is useless in relations to a bankrun, because what you want to do is to make bondholders and depositors confident in that there money is safe. So for nationalization to work in relation to a bankrun you either need an explicite goverment guarantee of deposits and bonds or a strong belief that the goverment will dont let the goverment owned company fail.

The question is whether Iceland even can save its banks or will face a sovereign debt default at some point. If Iceland does default, it would be better for the country to do it now rather than later. It seems that the political mood is such that default seems likely imho.

65

Tomas 01.08.10 at 12:50 pm

Or what Daniel already said…

66

Tom 01.08.10 at 1:19 pm

@51 – Heh, very good.

67

James Conran 01.08.10 at 1:22 pm

“Of course you could do a limited liability nationalization…. However this is useless in relations to a bankrun, because what you want to do is to make bondholders and depositors confident in that there money is safe. So for nationalization to work in relation to a bankrun you either need an explicite goverment guarantee of deposits and bonds or a strong belief that the goverment will dont let the goverment owned company fail.”

I dunno. Nationalisation could perhaps be a means of effecting an orderly winding down of a bank in the absence of any satisfactory pre-existing bank resolution procedure.

Secondly a government could nationalise a bank on the basis that saving it would be less costly than letting it go bust, but then learn new information refuting that judgement. In that circumstance a government with limited liability might change its mind and let the bank sink.

Thirdly a government could take 100% ownership so as to own all the upside resulting from recapitalisation of a bank. In this instance the recapitalisation, rather than the backing of the sovereign for the bank’s liabilities, would be the chosen means of saving the bank.

In all these cases retaining limited liability could turn out to be important.

68

bob mcmanus 01.08.10 at 2:16 pm

” Iceland nationalised Landsbanki. Therefore in principle the starting point would be that all of the liabilities of Landsbanki… would become liabilities of the Icelandic sovereign.”

So if Goldman Sachs runs up 50 trillion in mbs, cdo, cds, etc, starts to fail, and the US gov’t tries to save the World by nationalizing GS, the US taxpayers are on the hook for the 75T? Don’t creditors ever take a haircut short of default and bankruptcy?

Do Americans understand this?

69

Alex 01.08.10 at 2:25 pm

If Tim Worstall is still around – you keep using the word “promises”. There is a difference between a mere verbal promise and a contract, and an even bigger one between a “promise” and legislation.

Heck, the current UK Government is the one that argued in court that election manifesto promises are not legally enforceable.

No, they are not, which is why they are called a manifesto rather than, say, a contract, a prospectus, or something of the sort. Also, I don’t actually think they should be, on the grounds that democracy does not just happen at elections and a lot of stuff tends to happen in five years that you may not have predicted.

If the UK government was to argue in court that, say, the Treaty of Rome wasn’t legally enforceable cos of stuff, you might have a point.

Further, Iceland isn’t in the North Sea.

70

Ari 01.08.10 at 3:18 pm

What exactly does neoliberal mean in your post! The Government of David Oddsson (and later of Geir Haarde) followed some sort of corporatist hodge podge of policies whereby the state grew enormously while selling the crown jewels off to friends and allies. Thus, Landsbanki was privatized into the hands of unfit owners who the conservative Independence Party approved off while the regulators where neutered by putting party loyalist in charge. I’m not sure this fits the neoliberal label.

What the Icelandic President refused to sign was a bill amending an earlier bill that has already entered into law whereby the Icelandic state does indeed take on the obligation to pay its Icesave liabilities. The law that was to be amended is thus still in force as is Iceland’s obligation to pay its bills. The problem with the law as it stands is that parliament included in it clauses that unilaterally modified the trilateral Icesave agreement in a manner which the UK and NL governments thought was not on at all. So the issue here is a bit less dramatic than Iceland refusing to pay up.

Iceland’s ability to pay the Icesave bill is however completely uncontested; it can’t. The UK and the NL will thus at some politically expedient point have to renegotiate the agreement. Otherwise, Iceland will default which is hardly in anyone’s interest. Question is whether now is that time or if we should all pretend for a few year that Iceland can pay.

You are right about the machinations of the Icelandic Government after the banking collapse they ranged from stupid to dishonest. You are wrong however to characterize the effects of the Legislation on Emergency Bank Takeovers as a nationalization. The banks (Glitnir and Kaupthing as well as Landsbanki) first vent insolvent and only then where they taken over by resolution committees that kept them open under the emergency legislation. Effectively the banks no longer met the requirements of their banking licenses and the county’s whole economy would have come to screeching halt without the Emergency Legislation.

The Nyi Landsbanki (and Nyi Glittnir and Nyi Kaupthing) where established to keep the domestic banking system functional not as an attempt at discriminating in favor of domestic depositors. The state has had to capitalise these institutions at great cost. Where the discrimination comes into play is because of the piss poor way in which the Emergency Legislation was written and because of the rather ill advised declarations of various Icelandic politicians.

And the Dane in #8 is right the only people who think Iceland is famous for anything other than Bjork and geysirs are Icelanders.

71

Barry 01.08.10 at 3:25 pm

A few points:

JoB @ 22:
“10- Clearly you’re not one of the many employees of RBS that is or will soon get fired.”

This does indeed s*ck for them, particularly as (at a guess) the most guilty will be least likely to be fired, or at least the most likely to get a bribe to keep quiet golden parachute.

However, the Icelandic situation is more comparable to an RBS employee being fired, and going home to find out that their home has been seized, and being slapped with a court order to make monthly payments on the RBS debt.

John Quiggin 01.08.10 at 3:59 am

“At least under the rules of the market system as it has prevailed for the last several decades, everything seems pretty clear. As debtors, the Icelanders should default if they think the penalty for doing so is less than the cost of repaying. As creditors, the UK and Netherlands should punish them to the point where the marginal cost equals the marginal extra repayment they can extract. Third parties like the IMF should do whatever is in their own best interests (in this case, probably, lining up with the UK & Dutch). And everyone should expect that, if the roles are reversed at some point in the future, the lines (Interesting FS – I managed to type ‘liens’) will remain the same.”

Those indeed are the rules by which the game is played; my hope is that if enough people play by those rules, the elites which came up with them might decide that a more equitable and civilized system is perferable. [when I first encountered the term ‘efficient breach’, my first thought was that I knew whose breach would be considered ‘efficient’, and it wasn’t the little guy.]

A thought occured to me upon reading John’s comment – would default also be in the best long-term interests of most Icelanders, not in spite of the damage to the national credit of Iceland, but because of it? My guess is that it’ll be a long time before (a small fraction of the people who were making the big decision) in Iceland can play the bubble game again, because the memory of default will be big in creditors’ minds.

In a situation where a small number of people are highly influential in creating and profiting from a bubble, this would be a good thing; in a situation where the decisions and profits were more widely spred, it might not be.

72

Barry 01.08.10 at 3:27 pm

Oh, a correction: “…an RBS employee being fired, and going home to find out that their home has been seized, and being slapped with a court order to make monthly payments on the RBS debt, *************and their children being slapped with the same order, so that they might spend the odd decade or two paying off the debts of their parents*************.

73

dsquared 01.08.10 at 3:29 pm

A default would be a totally different debate, which nobody at all, particularly not the Icelanders wants to have. What Icelandic President wants is for the UK and Dutch governments to simply pretend that his Prime Minister never incurred the debt, or did so on much more terms than he actually did, so that Iceland can enjoy both the advantages of not having defaulted, and the advantages of not having paid back the money. And he thinks he can achieve this through a combination of tupenny-hapenny corporate finance swizzes and political grandstanding about “little Iceland” standing up to the “bullying” Brits and Dutch.

74

Walt 01.08.10 at 3:34 pm

I find that hard to believe, dsquared. How would the Icelandic President imagine that would come about?

75

dsquared 01.08.10 at 3:36 pm

by the way and further to #69, the Icesave debt is less than a tenth of the total obligations that the Icelanders have already incurred at the sovereign level. The amount of $20,000 per head compares to $30,000 per capita for the USA, $42,000 per head in the UK and $72,000 per head in Japan. The problem Iceland has is not Icesave and the bullying Brits – it is the other debts it took on.

76

dsquared 01.08.10 at 3:40 pm

#71: The President now also has the luxury of not having to deal with the political consequences, since his party were voted out; he’s able to undermine Johanna Sigurdadottir and play to nationalist sentiment to try and pretend to Icelanders that their economic disaster was the fault of global conditions and nefarious foreigners, rather than his party’s disastrous policies. Words really cannot express how venal and awful these politicians are. Also, Iceland has a long political history of making utterly outrageous claims and then getting away with it because it isn’t worth the trouble to other people, viz the “Cod War”.

77

JoB 01.08.10 at 3:45 pm

69- I think it will be easier to find an RBS employee going homeless over what happened to RBS than it will be to find an Icelander going homeless because of Icesave. So – nice, but no cigar. On principle you’re not going to carry the flag for the poor Icelanders and pragmatically neither – & hence there is just no case: they have to pay up and learn the hard lesson that short term gain bit them in the arse, even without any vengeance from others whatsoever.

78

mds 01.08.10 at 3:49 pm

I do feel sorry for Sigurðardóttir et al. It looks to me that her government was trying to work out a solution in good faith, despite presumably being less than thrilled with all these goings-on when they were out of power. Then they get stiffed by the president, it’s somehow their administration which gets a black eye from the international community, and the Independence Party cobags who aided and abetted this nonsense to begin with get to grandstand to the public with a referendum saying, “Do you guys want to let the current government tax you and give the money to foreigners, or do you support wiping the slate clean with magic? Plus, a new Icelandic pony for all!”

On the other hand, I suspect mr. mcmanus would note that this is what you get when the Left focuses exclusively on social democracy. Actual old-school leftists might have known what to do with weeks of popular demonstrations against bankers and the Independence Party, and it wouldn’t have left Ólafur free to sabotage the majority government for partisan benefit.

79

mds 01.08.10 at 3:51 pm

Obviously, I should learn to either (1) type faster; or (2) simply wait for dsquared to comment further.

80

Ari 01.08.10 at 3:52 pm

dsquared – the Icelandic president is a former MP from and Chairman of the Icelandic Labour Party which merged with the social democrats to form the current senior party of government! He’s one of the most hated people in the country as far as the Independent and Progressive party membership is concerned.

I’m afraid he’s one of Johanna Sigurdardottir’s long term political allies.

81

dsquared 01.08.10 at 4:01 pm

former MP from and Chairman of the Icelandic Labour Party

oh come on – this is about as relevant as saying that Peter Mandelson is a former Communist! He was arm in arm with Oddson throughout the go-go years.

82

Eyja 01.08.10 at 4:11 pm

I’m getting very excited to hear which party it is that the president belongs to that was voted out. Clearly, dsquared is an expert on Icelandic politics.

83

Ari 01.08.10 at 4:20 pm

“He was arm in arm with Oddson throughout the go-go years.”

Actually no, those two hate each other to a point whereby they could not attend the same state dinners when Oddsson was in power. Support for David Oddsson is simply not one of the President’s many faults.

84

alex 01.08.10 at 4:29 pm

Are we still sure invading isn’t an option? C’mon, seriously, what could go wrong?

85

Barry 01.08.10 at 4:30 pm

JoB 01.08.10 at 3:45 pm

“69- I think it will be easier to find an RBS employee going homeless over what happened to RBS than it will be to find an Icelander going homeless because of Icesave. So – nice, but no cigar.”

I don’t smoke. Considering that Iceland is taking a currency hit and a commodities hit, it’ll probably be easier to find an Icelandic person going homeless.

” On principle you’re not going to carry the flag for the poor Icelanders and pragmatically neither – & hence there is just no case: they have to pay up and learn the hard lesson that short term gain bit them in the arse, even without any vengeance from others whatsoever.”

Aside from the grammer, ‘…learn the hard lesson that short term gain bit them in the arse…’ is a lesson that seems to be inversely correlated with personal responsibility for that, at least in the USA. Now, in a sense you’re correct – the elites’ short term gains did bite everybody else in the arse.

86

Barry 01.08.10 at 4:31 pm

Also, I don’t think that my question has been answered – would it be better for most Icelanders to default?

87

dsquared 01.08.10 at 4:36 pm

A quick check with a Nordic mate reveals that Ari is right – Grimsson was a bit of a cheerleader for “Icelandic values” and the Icelandic Tigers generally, but hated Oddson personally and his party. Very sorry for that. But he’s not an ally of Sigurdardottir either and seems to be screwing the government for reasons nobody understands.

88

Eyja 01.08.10 at 4:37 pm

Perhaps a couple of clarifications are in order:
1) It is emphasized that the president of Iceland not be affiliated with a political party while s/he is in office. Before running for president, Ólafur Ragnar Grímsson was in politics, most notably in the labor party, with some briefer stops in two other parties. Practically the only political party in which he’s never been involved is Davíð Oddsson’s Independence Party.
2) While Iceland’s current president may deserve all kinds of criticism for all kinds of things he’s done while in office, the charge that he’s out to undermine the current government is unfounded and highly implausible.
3) The proposed referendum will not be on whether Iceland pays its dues to the UK and the Netherlands, a matter that is hardly up to popular choice. It will concern a particular arrangement of payment proposed by a particular bill. Very different.

89

dsquared 01.08.10 at 4:47 pm

#84: note that as a result of the Dubai crisis, a lot of very, very poor South Asian labourers will not only lose their jobs but be deported back to a life of unimaginable rural poverty. Should we all decide to stop bullying the plucky little emirates?

90

AB 01.08.10 at 4:58 pm

#87 Ooh, I like this game. Pity the poor unemployed pizza-deliverers, lapdancers and coke dealers who might still be in gainful employment had we saved Lehman. Poor little Lehman.

91

JoB 01.08.10 at 5:13 pm

84- Ha-Ha, and not all things are settled with a reference to systemic unfairness in this great USofA. But prove me wrong: Iceland after all is basically a Scandinavian country that turned neoliberal. I suspect that means that people that default personally get aid, not a part of the Icesave burden. At least if the rest of the world continues to bail them out. Which will be more likely if they don’t put up their middle finger saying how bad it is to be them.

And further to 87: what in earth would have already happened to the immigrants?

92

Eyja 01.08.10 at 5:20 pm

To the moderator:

This is not intended as a public comment, but I couldn’t find another way to send a message.

For some reason my comments don’t seem to be passing moderation here. While my shot at the author’s “expertise” in Icelandic politics may have been cheap (my apologies), I have some difficulty grasping how it was considered more offensive than, say “If you ask me Icelanders are born front office types. They are arrogant and aggressive, if you walk down the street in Rejkavik the men will bodycheck you constantly rather than be polite” which made it through above, written by another commenter. And what was offensive about my other comment is beyond me.

If you could enlighten me, I’d be most grateful and happy to amend my ways in the future.

Best wishes,
Eyja

EDS – YOU CAN ALWAYS EMAIL US – BUT FIRST TIME COMMENTERS ALWAYS HAVE TO HAVE THEIR COMMENTS APPROVED IN ORDER TO MITIGATE THE PROBLEM OF SPAM.

93

Mister Oodles 01.08.10 at 5:20 pm

Britain should announce that they’ll henceforth fish in Icelandic waters, and if interfered with, will sink Icelandic vessels.

94

Alex 01.08.10 at 5:28 pm

What exactly does neoliberal mean in your post! The Government of David Oddsson (and later of Geir Haarde) followed some sort of corporatist hodge podge of policies whereby the state grew enormously while selling the crown jewels off to friends and allies. Thus, Landsbanki was privatized into the hands of unfit owners who the conservative Independence Party approved off while the regulators where neutered by putting party loyalist in charge. I’m not sure this fits the neoliberal label.

It may not fit the neoliberal label…but it fits the practical implementation to a T!

95

T 01.08.10 at 6:03 pm

What would happen if The Royal Bank of Scotland refused to repay the government’s capital injections? The bank would go bankrupt and the employees would be out of a job, but nobody would suggest that the employees should have to repay the injections from their own pocket. Not even the owners would be liable for more than their share of the funds. The system is set up like this for a very specific reason. Not only would it be gravely unjust, but it would destroy the world economy in the long run if liability not was limited. Yet this is the fate you suggest for Iceland.

96

mds 01.08.10 at 6:13 pm

Poor little Lehman.

I actually feel a bit sorry for them as well, in that they were at least as good a candidate for a bailout as those that ended up receiving them. Aside from being a competitor of Goldman-Sachs, that is.

But unsurprisingly, I am yet again confused. If the president of Iceland actually loathes the Independence Party, why is he carrying the IP’s water for them? Or is he actually too stupid to see that he’s doing so?

97

A 01.08.10 at 9:08 pm

From the Vanity Fair Article ( p.3 ): “…David Oddsson, the architect of Iceland’s rise and fall. Back in the 1980s, Oddsson had fallen under the spell of Milton Friedman, the brilliant economist who was able to persuade even those who spent their lives working for the government that government was a waste of life. So Oddsson went on a quest to give Icelandic people their freedom—by which he meant freedom from government controls of any sort. As prime minister he lowered taxes, privatized industry, freed up trade, and, finally, in 2002, privatized the banks.”
So Iceland suffered the same ill effect of ‘neoliberal’ policies as the U.S. and other countries did, only made worse by the small base on which the capitalist predators preyed. Here in the U.S., we have enough people that we can bail them all out! (We practiced with the savings-and-loan scandals of the 1980ies [for which some people actually went to jail], saw it worked fine, and got the current crisis, being just on the right scale for bailouts to be possible without too much disruption (10% unemployment a regrettable side effect). Iceland’s banks forgot to insure with AIG; then they’d also been bailed out! No matter where, it seems the classes of those who profited and those who have to pay have little overlap.

98

Maynard Handley 01.09.10 at 12:26 am

“What would happen if The Royal Bank of Scotland refused to repay the government’s capital injections? The bank would go bankrupt and the employees would be out of a job, but nobody would suggest that the employees should have to repay the injections from their own pocket. Not even the owners would be liable for more than their share of the funds. The system is set up like this for a very specific reason. Not only would it be gravely unjust, but it would destroy the world economy in the long run if liability not was limited. Yet this is the fate you suggest for Iceland.”

Hmm. Let’s follow this line of logic. So what you are saying is that when a corporate entity cannot pay its debts, it goes bankrupt and disappears.
OK, let’s apply that to Iceland. The corporate entity that is Iceland the state declares bankruptcy, disappears, and its assets go to the creditors; so the Iceland joins the UK as its fifth province, subject, of course, now to UK law and government. Maybe, one day, in a few generations, we can give them some devolution, but at first central government control is probably best, given what a hash they made of things they last time they tried to run their own government.

I think the UK can live with such a deal.
How about it, Iceland? Is that the road you would like to go down?

99

novakant 01.09.10 at 12:36 am

So it’s all Iceland’s fault – how cool is that! I say: Invade!

100

Jacob Christensen 01.09.10 at 12:57 am

Re: Ólafur (as I understand he is to be called), his political history is pretty complicated. In many ways he appears to have been a bit of a loose cannon and it is a complete mystery to me how he ever could be elected president of Iceland. It is a bit like Klaus squared with a healthy dose of Ghadaffi (or however the guy’s name is spelled) added while poor Johanna is trying to be the voice of reason. The Ólafur used to be a professor in political science – well: Shame to my profession.

Then there is the historical context: As every member of the Timberite community probably know, Iceland and the UK has a history of conflict and the UK should have thought twice before playing the “terrorist” card. (But then again measured action does not appear to be a British virtue, especially not when dealing with a weaker partner).

I have been told by an Icelandic colleague that Icelanders have an approach to risk which does set them apart from the other Nordic countries. Basically, the Icelandic live on the edge in the assumption that at one point they will be hit by uncontrollable disasters – volcano eruptions killing a large part of the population, the cod disappearing from one year to the other or prices on aluminium collapsing. So maybe, deep down and despite all judicial fineries, we will find an expectation among Icelanders that the Brits and the Dutch really ought to stop whining and get on with their lives. This was just another of those catastrophes (even if this one definitively was man-made).

And in case you want to know how we Danes see the Icelandic, you only need to head for your nearest DVD store and order a copy of Lars von Trier’s The Boss of It All.

101

Eyja 01.09.10 at 1:14 am

Sorry for the misunderstanding. I got a notice about my comments awaiting moderation and assumed all comments were moderated, hence I drew the conclusion that other comments appearing after mine had gone through moderation while mine hadn’t passed it.

Yes, I would much have preferred emailing to writing comments about moderation policy and this is where I’m feeling particularly dense at the moment: How do I find out how to email you? I can’t find any email addresses on the blog (and believe me, I’ve looked).

102

Henry 01.09.10 at 1:23 am

Follow the links to our web pages and all will be revealed. Or alternatively, try “this link”:http://www.google.com/search?btnG=1&pws=0&q=%22henry+farrell%22 ;)

103

Eyja 01.09.10 at 1:35 am

Henry, that does indeed work in case I wanted to email you. Daniel, however, does not seem to have an easily found email address on his page, and given that his name is rather common and some of us clueless about where he works or what he does, Google isn’t of much help either.

104

Daniel 01.09.10 at 2:36 am

@93

>>Britain should announce that they’ll henceforth fish in Icelandic waters, and if interfered with, will sink Icelandic vessels.

And the Icelanders should hire some Iranians, equip them in swift patrol boats and scare the Brits away or into surrender.

105

piglet 01.09.10 at 2:46 am

I am amazed how many people in this thread are experts in all matters Icelandic. All the more as I have to observe that hardly any of the strong claims that have been made here have been backed up by verifiable facts. The Iceland-lynching going on here will be remembered as one of the lowest points of debate ever registered at CT.

106

Mister Oodles 01.09.10 at 2:55 am

And the Icelanders should hire some Iranians, equip them in swift patrol boats and scare the Brits away or into surrender.

It would be a splendid little war, don’t you think?

107

piglet 01.09.10 at 2:58 am

Iceland is “Goliath” and Icelanders are like finance industry CEOs clamoring for million dollar bonuses (43)? “Send in the tanks”? What virus has spread among CT readers?

“a nation of extremely well-to-do (No. 1 in the United Nations’ 2008 Human Development Index)” – you do know, don’t you, that the HDI is composed of one third GDP, one third life expectancy, one third education. Well-to-do yes, but not in the purely materialistic sense. Of course one may think that a country that chooses to well educate its citizens and offer good health care needs to be punished for such shocking arrogance. If that is the implication then say it openly.

And then there’s the shocker that Worstall sounds like a voice of reason. That is definitely a first. Any explanation? Time-space singularity or what?

108

piglet 01.09.10 at 3:01 am

“1) Iceland nationalised Landsbanki. Therefore in principle the starting point would be that all of the liabilities of Landsbanki, wholesale deposits, local authorities and all, would become liabilities of the Icelandic sovereign.”

You mean like when the US took over GM, all GMs liabilities became sovereign debts? Oh that’s why GM workers have lost most of their contractual benefits. Thanks for explaining. Does anybody have an even dumber explanation? Apparently there are no limits to idiocy on this thread.

109

piglet 01.09.10 at 4:25 am

“OK, let’s apply that to Iceland. The corporate entity that is Iceland the state declares bankruptcy, disappears, and its assets go to the creditors; so the Iceland joins the UK as its fifth province, subject, of course, now to UK law and government. Maybe, one day, in a few generations, we can give them some devolution, but at first central government control is probably best, given what a hash they made of things they last time they tried to run their own government.”

There really are no limits to idiocy on this thread.

110

piglet 01.09.10 at 4:29 am

(Or am I missing some botched attempt at sarcasm here?)

111

JoB 01.09.10 at 9:57 am

piglet, piglet!

112

Tim Worstall 01.09.10 at 10:00 am

“And then there’s the shocker that Worstall sounds like a voice of reason. That is definitely a first. Any explanation? Time-space singularity or what?”

Stopped clocks and all that…

113

Eyja 01.09.10 at 11:27 am

@105 Yes, it is rather humorous to see people who evidently can barely place Iceland on a map profess to analyze Iceland’s political situation and what not. This comment thread on its whole is, I suppose, one of these typical blog comment threads where those commenting tend not to be bothered with details such as facts and are much more enthusiastic about saying something witty or clever-sounding.

With the Icesave debacle being heavily covered on the news in my neck of the woods (i.e. Iceland) for the past 15 months (prior to that, I doubt any Icelander who didn’t work for that particular department at Landsbanki had ever heard of Icesave, let alone that Icelandic taxpayers were signed up as its financial back-up), I’ve changed my mind about this whole thing with the same frequency as my socks. All I’m willing to commit to at the moment is that the issue is much too complex to be fully grasped through skimming through some opinion piece, and that those who claim that it’s obvious exactly what should be done in the matter are most certainly missing something. I’d like to see the matter finally settled through an independent third party. It *is* clear that the governments of the UK and the Netherlands have engaged in bullying in the matter, not just through the British terrorist law, but through exerting their influences on the IMF and within the EU, resulting in enormous international pressure on the Icelandic government to agree to paying up…and agreeing quickly. That’s not the best scenario for arriving at a good and fair decision. “Do X or else you won’t have any friends” is not a very good argument for X’s being the right choice, even though it may make X seem like the most practical choice.

This international pressure has been a significant part of the arguments for agreeing to this current deal proposal (“We must agree to this or else we’ll be the outcasts of the world”) while at the forefront of those opposing it have been right-wing opportunists who played a large role in putting us in this mess in the first place. In other words, the choices haven’t exactly been appealing. Claiming that the matter is about whether Iceland honors its obligations is meaningless given that it’s contested what its obligations are, and what kind of obligations they are (legal?, moral?, obligations to whom?).

Whether the president made the right choice when he decided to veto the bill is not clear to me. I think he had a very difficult choice on his hands. He had received a petition to do so from a quarter of eligible voters, and the bill was a close call when it went through parliament. What his motives for the decisions are, I can’t say. I’m no fan of his and would be happy to say that vanity had something to do with it, but it seems entirely possible that he sincerely believed he was making the right choice and wasn’t acting for some ulterior motive.

114

JoB 01.09.10 at 11:58 am

Eyja, I have the utmost respect for your nuanced take and certainly know that I do not know everything of the case (although I can do probably a bit more than place Iceland on a map: I can do it correctly). But I hope you agree that one should be able to state in principle what should happen in a case like this even if one is not a main player. This is, in principle, not just a matter of the Icelandic people since you need aid from IMF, and such aid (which I believe you should get and the Greeks should get, no matter what has happened before) clearly is not just there for the asking. I don’t want to offend but it is a case of beggars can’t be choosers. Maybe the UK & Netherlands were insensitive and all that during the process but they had a rightful say in this matter; it’s not like this has come anywhere near the treatment of the Weimar Republic in the 20’s.

115

Martin Wisse 01.09.10 at 12:03 pm

One thing that hasn’t really come up in this whole debate and the real problem I have is that no matter whether my government (.nl) or the Icelandic government pays up, it’s once again the bloody savers, the people with surplus money, who get bailed out by people like me, living from wage to wage. I don’t have thousands of euros to put in dodgy investment banks, yet my tax money should bail out those fuckers?

116

sg 01.09.10 at 1:45 pm

I’d like to add to Martin’s comment – the only person I know who was directly affected by the icesave debacle in the UK was earning 120k pounds a year and had the proceeds of the sale of their first house invested in Icesave, for the high interest rates. Why should I, who earns considerably less than that person, don’t have large savings and don’t own a home, have to have even a penny of my taxes bail them out for not understanding the high risk they were taking? I don’t get the impression that the depositors in icesave were your penny-pinching, bottle recycling OAPs.

But I suppose this is another one of those “suck it up” moments that the neoliberals love. The poor in Iceland have to wear the responsibility for their stupid leaders’ mistakes, and those of us who don’t have a couple of 10s of ks of pounds to invest in high risk accounts just have to sit back and suck when those with the power demand it. Another example of the reality of power that neoliberals love to smugly remind the rest of us about.

I agree with piglet too, the iceland-bashing here is pretty low, and it seems like another one of dsquared’s opinion-on-a-whim pieces which unravel as soon as someone who knows anything about the topic comes along.

117

JoB 01.09.10 at 1:59 pm

Since 115 I can see another angle. Still, to the extent that the debtors need to be repaid Icelanders still have to, in somebody else’s words, ‘suck it up’.

PS: there was very limited Iceland-bashing unless for some fuzzy small group anarchy feeling any disagreement with anybody represented as poor and defenseless counts as bashing

118

alex 01.09.10 at 2:55 pm

Please identify “the poor in Iceland” who will be paying for this. With a Gini coefficient of 25 and a per cap GDP around the $60K mark, we should all be so poor. And there are still only 320,000 of them.

119

alex 01.09.10 at 3:03 pm

Oops, $50K I mean. Still, a way off picking over rubbish-heaps for rags.

120

Þór 01.09.10 at 3:05 pm

This comparison is by any standards, daft.

A more accurate comparison would be if subsidiaries of the RBS went on a spending spree and ended up owing the British government a crapload of money, the subsidiaries would file bankrupcy. In such a case the RBS wouldn’t be legally liable.

That’s exactly what happened in Iceland – privately owned banks and corporate chains of ridiculous proportions collected a debt that was blatantly clear already in 2007 by the British FSA (in regard to IceSave), and yet nothing was done, neither by the Icelandic FME, not the British FSA. Why ? Perhaps because in true human greed, they hoped that if they’d turn a blind eye, things might fix themselves, and they’d get a return on their invested penny ? Who knows.

At least, if making a comparison, do compare apples with apples. The reason for the “IceSave debt” is that when the Icelandic government stepped in and guaranteed the savings of *their subjects*, the British and Dutch governements paid *their subjects* the full amount of *their* savings, and then expected the Icelandic government to step up and pay back.

There’s NO precedent to such demands, NO international law, agreement or treaty that requires the Icelandic government to honour such demands, and it has been made clear by the authors of the laws about the savings insurance fund that it was NEVER ment to insure the complete collapse of the financial system of a whole country – only the collapse of a single bank.

121

Eyja 01.09.10 at 4:28 pm

@114
“But I hope you agree that one should be able to state in principle what should happen in a case like this even if one is not a main player.”
Of course one can state whatever one wants. However, when people express opinions and at the same time expose themselves as blatantly ignorant of basic facts (such as by claiming that the president of Iceland and Davíð Oddsson are buddies, or by claiming that this decision of the president means that Icelanders are going to default on their debt), they’ve only themselves to blame when others draw the conclusion that they’re speaking through some other orifice than their mouth. It’s easy to point at a principle such as “people should pay the debts they incur”, something that every reasonable person will agree with, and hit people over the heads with it repeatedly. But that doesn’t show how that principle applies to some particular case that may involve all kinds of complications, or to what extent it’s reasonable to try to stick to it .

“This is, in principle, not just a matter of the Icelandic people since you need aid from IMF, and such aid (which I believe you should get and the Greeks should get, no matter what has happened before) clearly is not just there for the asking. I don’t want to offend but it is a case of beggars can’t be choosers. Maybe the UK & Netherlands were insensitive and all that during the process but they had a rightful say in this matter;”
It’s not clear to me where you’re going with this. I don’t know if you’re some kind of moral nihilist, in which case you’re going to disagree with me, but I firmly believe that the fact that you *can* make someone (such as a desperate beggar) do something does not imply that it would be right of you to do so. It’s obvious that the IMF, the UK and the Netherlands have much more power than Iceland in an international context. And of course it’s nothing but desperation that’s compelling a left-wing government to yield to the demands of the IMF, an organization that hasn’t exactly been known for its humanitarian efforts. Yes, the UK and Netherlands have a rightful say in the matter, but so does Iceland, and the most just way to settle a dispute is not achieved by the stronger party applying force, be it direct or indirect.

122

JoB 01.09.10 at 4:50 pm

Eyja,

OK, you were not pointing to my ignorance but just claiming everybody was ignorant that disagreed with you because ‘somebody that disagreed with you’ was ignorant ‘on something you are not ignorant of’. Glad to have that out of the way so I can dispense with talk of orifices.

So there is a dispute. There was an agreed way of settling the dispute. One party walks away from that agreement. What now? Do the other parties have to bend over? Do we all have to apologize for using figurative speech because it can be interpreted literally. Or do we note that there is a reason for the party walking away to be interested in this agreement, e.g. because it relies on its neighbours, the EU and the IMF (the last two of which include the other parties as members) to back it up financially?

I mean it’s all fine and dandy to walk away from an agreement and then cry like a baby if others point out that that agreement was something you needed.

I’m quite sure that the case details are complex but luckily for Iceland we’re not in this kind of humanitarian situation where e.g. (as has been pointed out) feels compelled not to enforce a responsibility another nation has towards it.

123

piglet 01.09.10 at 9:49 pm

JoB: “I don’t want to offend but it is a case of beggars can’t be choosers.”

I thought it was a case of the Icelandic Goliath intimidating tiny UK playing the role of slender David carrying only a slingshot. That at least is what you asserted 01.08.10 at 10:47 am dearest JoB (another biblical reference btw?)

If your posts had been a little bit more coherent, less hyperbolic and at least minimally based on empirical reality, I might bother debating them. As it stands there is absolutely no point trying to argue you since it isn’t even clear what your argument is. “Beggars can’t be choosers”: well maybe but the beggar might still have the moral high ground. I suspect you don,t even realize how incoherent your rambling are.

124

dsquared 01.09.10 at 10:58 pm

Eyja, you’re chucking around accusations that other people are “ignorant”, but you yourself are talking about “the UK using the terrorist law” and your only argument here appears to be that it’s in some way “not fair” unless the government of Iceland is able to make promises in order to get short-term help and then renege on them immediately after.

If people borrow a lot of money and then don’t pay it back, then they tend to lose their friends. That isn’t bullying people by saying “do what we say or you won’t have any friends”, it’s just noting that you can’t steal money from people and expect them to like it. The UK and Netherlands have agreed a long-dated repayment schedule with the government of Iceland, and the IMF had agreed a loan on that basis. Strangely, we all managed to carry out financial negotations without making bizarre and irresponsible threats to suddenly abandon our NATO obligations and hand over Keflavik airbase to the Russians.

Your government behaved stupidly, your bankers behaved stupidly and then your government behaved amazingly stupidly in trying to deal with the crisis your bankers created. You would do a lot better to get angry at them, not people who point out these unpleasant facts to you. (and for what it’s worth, I first heard of Landsbanki, Kaupthing et al rather more than fifteen months ago, when they ripped off a bunch of my friends very badly).

125

piglet 01.10.10 at 1:04 am

“Your government behaved stupidly, your bankers behaved stupidly and then your government behaved amazingly stupidly in trying to deal with the crisis your bankers created.”

As opposed to the governments and bankers of, say, the UK, the US and the like? Which all didn’t behave the least bit stupidly, right? And they were all dealing intelligently with the crisis? One really really wonders why your rambling here, dsquared, are so highly emotional. We can all I hope agree that a lot of governments, companies, and individuals behaved stupidly. If that is the basis of your accusation, you are quite right to accuse Iceland but nobody in their right mind would claim that Iceland is the worst offender. I have no idea what motivates your selective Iceland-bashing. I have no positive or negative connection to Iceland in particular but it isn’t hard to see that there is an effort to make a conveniently small nation into a scapegoat for an epochal mess to which they contributed only marginally whereas the true culprits are still off the hook.

126

Jake 01.10.10 at 3:07 am

No one is making Iceland a scapegoat, people are just calling bullshit at the attempt to play the “poor innocent ganged up upon me” card. The same thing happened whdn the people holding junior debt in Chrysler tried to make a run of the mill Chapter 11 cramdown into jackbooted thugs robbing grandma of her pension and undoing hundreds of years of bankruptcy law. Life is tough all over.

127

piglet 01.10.10 at 5:49 am

It would be helpful if you (Jake, dsquared, JoB etc.) based your arguments on something other than laughable non sequiturs and baseless comparisons (“The same thing happened whdn the people holding junior debt in Chrysler” – oh yeah, that’s exactly analogous to Icelandic taxpayers).

128

piglet 01.10.10 at 6:26 am

Forgot to mention that Jake’s analogy – Chrysler debt-holders losing their money after a bailout – is self-defeating as well.

129

Walt 01.10.10 at 7:19 am

piglet, do you have an actual argument, or have you been appointed to the little-known job of policing Internet analogies for baselessness?

I haven’t been following the Iceland situation closely, but if the facts are as dsquared laid them out, then they are quite damning to Iceland. Does Iceland’s declaration that they would only guarantee Icelandic back deposits violate their European treaty obligations, treaty obligations that allowed them to get access to the European banking market? Did Iceland promise that when the UK bailed out Icesave’s UK depositors they would pay it back? These are the relevant questions, not whether British citizens who are angry that they are getting stuck with the bill because the actions of Icelandic bankers are being mean.

130

JoB 01.10.10 at 10:34 am

piglet – piglet!

131

JoB 01.10.10 at 11:15 am

A beggar may well have the moral high ground but not if she stole money, then forgot she hid it somewhere in the firewood, then proceeded to burn it all and then tell those she stole from that they’ll just have to lend her some money because she can’t pay her weekly sushi ration anymore.

132

novakant 01.10.10 at 12:23 pm

it’s once again the bloody savers, the people with surplus money, who get bailed out by people like me, living from wage to wage.

Well, generally there’s absolutely nothing wrong with saving money and governments trying to protect the property of their citizens. Unless you want to go all class-warfare on us and are operating under the assumption that people who happen to have some money in the bank are all guilty or something. Also they see their assets being diminished when governments lower interest rates to values close to zero in order to combat yet another crisis. And then there are the cases like that of Westminster Council, which had 17 million tied up in Iceland – why should I, who happens to live there, get punished for what happened?

133

Tim Wilkinson 01.10.10 at 2:06 pm

novakant (re: Martin Wisse @115 it’s once again the bloody savers, the people with surplus money, who get bailed out):
there’s absolutely nothing wrong with…governments trying to protect the property of their citizens

As ever, whatever initial plausibility that has is not even relevant unless that’s the right description of what went on (‘primakant’ runs into an analogous problem, IIRC).

A slightly arcane point of common law: this is about debt, not property. I’m no expert though, and there may be complications involving, e.g., choses in action, equitable remedies…as well as, at the international level, any civilian/Euro law that might be involved.

A more substantive point: yes, there may be small savers from the non-FT-reading class involved. To the extent that they were unaware of the risks attendant on their free lunch, the obvious possibility of mis-selling (above and beyond the generalised con that is Thatcherism-for-the-masses) might bear some investigation. And the UK govt could perfectly well have compensated up to a lower sum, or made all kinds of other arrangements to deal with genuine (relative) hardship.

In any case, Martin certainly has a point. If the UK government had rushed in a bit less eagerly with this particular blanket bailout, they might have been more diligent in getting some kind of clear contractual arrangement in place, rather than a ‘promise’ of some – to me, still rather inscrutable – kind.

Especially* since, as someone else has pointed out, UK govt ministers and whips are past masters at issuing worthless assurances, like ‘this Draconian law is not to be taken literally (pssst! except by judges)’, in relation to legislative bills which, as someone else has pointed out, were used to usher all kinds of stuff into law under the free pass provided by The Panic.

[*Especially annoying, that is, not especially surprising – both being manifestations of the dominant ‘sofa’ school of legal and constitutional theory.]

there are the cases like that of Westminster Council, which had 17 million tied up in Iceland – why should I, who happens to live there, get punished for what happened
FWIW, I’d say that’s at least as clear cut a case of ‘democracy’ in action as Iceland. IIRC, the Tory Westminster Council is still owed a comparable figure from Shirley Porter. No central government compensation was provided in that case.

134

Tim Wilkinson 01.10.10 at 2:10 pm

Pedantry corner: “had rushed in a bit less eagerly” = “had not rushed in so eagerly”.

Pedantry hyper-corner: that’s the “=” of assignment, as found in programming, rather than of equality or identity…

135

engels 01.10.10 at 2:27 pm

Another interesting question is how much social housing could have been provided with the money we dumped on the City of London for the sake of the suffering British homeowner…

136

novakant 01.10.10 at 3:40 pm

whatever initial plausibility that has is not even relevant unless that’s the right description of what went on

I put the word “generally” there for a reason, Martin W was extrapolating and I took it from there.

A more substantive point: yes, there may be small savers from the non-FT-reading class involved.

My point applies also to most members of the FT-reading class (hint: most of them are not super-rich). Martin seems to be saying that governments should not regulate the financial sector and that everybody who has more money than himself should be left hung out to dry – I simply don’t see why that should be the case, since there are many people who have worked hard to create some wealth and they should be provided with a certain amount of financial security, similar to those relying on pension funds for their retirement.

137

Tim Wilkinson 01.10.10 at 5:28 pm

I put the word “generally” there for a reason
What – that you suspect it may be irrelevant here?

most of them are not super rich
fixed.

But the main point was to point out that they are (or rather, to stipulate only those who are) financially savvy – in particular wrt that central concept in the field of finance: risk. Hence mention of mis-selling – perpetrators of which are presumably shielded from legal action to the extent that government has mitigated the damage to savers.

Martin seems to be saying that governments should not regulate the financial sector
Not to me. Certainly not in the absence of some biggish auxiliary assumptions and a suitable principle of closure.

Anyway, Martin can speak for himself. The points I made don’t have any such consequence. Since when does an ad hoc bailout, or even (as not applicable here) government underwriting, constitute ‘regulation’?

138

novakant 01.10.10 at 7:05 pm

What – that you suspect it may be irrelevant here?

It’s really not my problem that you seem to be incapable of distinguishing between comments strictly to the topic at hand and more general comments, such as Martin’s and mine – the latter are fairly common to say the least and perfectly admissible.

fixed.

You need to get out more, e.g. take the tube or something. A lot of the people reading the FT are not rich in any commonly accepted sense of the word.

they are (…) financially savvy – – in particular wrt that central concept in the field of finance: risk.

Or they aren’t. I know tons of people who don’t have any talent for finance, but instead are simply very good at their jobs, which explains why some of them have a bit of money. And even if they are savvy, they might just want to invest in something solid with decent returns, so that they can pay for their children’s needs. If the trust in such solid investments is wholly being eroded and those that tend to invest conservatively are being punished, then we might as well resign ourselves to a Hobbesian natural state in this regard.

There is a lot of middle-class middle-ground here that you are needlessly throwing together with the much more extravagant shenanigans of high-finance. And Martin’s assumption that everybody who earns more than himself should be thrown to the wolves of capitalism conveys a similar attitude.

139

jdw 01.10.10 at 7:10 pm

I think people are losing sight of the fact that this post is about (1) the British sense of fair play, and (2) the fact that a people with the characteristics* that Mr Davies attributes to them cannot perhaps be expected to attach themselves to this high standard, and he is merely saying this has in fact proven to be the case. While it is true that we do not all all there is to know about Mr Davies motives for drawing this to our attention, an understanding of those two points should make it clear that motive is irrelevant. It is true that we have not been told what institution he works for, but I think we can assume by his general demeanour that it is in some important sense British. If he was French, it would of course be a different story entirely.

Good god. Let’s not forget that we are living the year 1911. It is not as if we have been whisked into some godless hodge-podge of a 21st century.

As a final point, I note that a foreigner has been allowed to come on this blog and criticize Mr Davies’ judgment respecting the stupidity of his indigenous government by comparison with that of her Britannic Majesty. I wonder if this is not taking the principle of toleration and free speech a little too far.

*”…a boastful little country with a selfish streak a mile wide…”

140

Tim Wilkinson 01.10.10 at 7:16 pm

1. But I did distinguish.

2. But I said ‘stipulate’

3. See 2.

141

Tim Wilkinson 01.10.10 at 7:19 pm

Preceding, currently @140, addressed to novakant, currently @138

142

Alex 01.10.10 at 7:26 pm

Since when does an ad hoc bailout, or even (as not applicable here) government underwriting, constitute ‘regulation’?

It wasn’t an ad hoc bailout, or Landsbanki would be still with us. it was the sodding deposit guarantee scheme we’ve had since whenever. Icesave didn’t do anything financially weird or expensive – just an instant access savings account with better interest rates than the high street banks. This is really getting ridiculous now.

143

piglet 01.10.10 at 7:57 pm

“A beggar may well have the moral high ground but not if she stole money, then forgot she hid it somewhere in the firewood, then proceeded to burn it all and then tell those she stole from that they’ll just have to lend her some money because she can’t pay her weekly sushi ration anymore.”

Thank you JoB for another excellent example of a totally irrelevant comparison. Walt 129 may not agree but some of us find arguments based on inappropriate comparisons inadmissible a forteriori if they keep contradicting themselves (from Goliath to beggar, from RBS to Chrysler).

“piglet, do you have an actual argument, or have you been appointed to the little-known job of policing Internet analogies for baselessness?”

Walt doesn’t believe there is a value in distinguishing bullsh*t from valid discourse. I happen to disagree. Even if I agreed with JoB and dsquared on the factual merits of the Iceland situation I would still have no tolerance for the bullsh*t rhetoric they are exposing us here, with David and Goliath and whatnot, and gems such as this: “Words really cannot express how venal and awful these politicians are. Also, Iceland has a long political history of making utterly outrageous claims and then getting away with” etc.

“I haven’t been following the Iceland situation closely, but if the facts are as dsquared laid them out, then they are quite damning to Iceland.”

These “facts” are heavily disputed. Do I know for sure whether dsquared is wrong? No. But I don’t need to be an expert in Icelandism to judge that some of dsquared’s statements such as 56 are factually wrong (compare 57, 68, 108) . Other claims he made have also been refuted. Healthy skepticism is warranted.

Now Walt, may I ask what is your argument?

144

Walt 01.10.10 at 8:02 pm

I don’t have an argument. I don’t have an opinion — I’m reading this thread to see if dsquared’s version of events holds up under scrutiny.

And now I see that you don’t have an argument either.

145

piglet 01.10.10 at 8:25 pm

“I’m reading this thread to see if dsquared’s version of events holds up under scrutiny.”

We have resolved that haven’t we.

146

JoB 01.10.10 at 8:27 pm

145 & before, I mean: you’re going to get the last word in anyway, aren’t you?

147

Walt 01.10.10 at 8:34 pm

We have resolved it by admission. Whether or dsquared or various commenters are being mean, no one has made a case on the merits that dsquared is wrong.

148

Tim Wilkinson 01.10.10 at 8:53 pm

Alex @142

It wasn’t an ad hoc bailout, or Landsbanki would be still with us
1. ‘Bailout’ referred to the savers, clearly enough.

it was the sodding deposit guarantee scheme we’ve had since whenever.

I was under the impression (including from what has been written here) that LB wasn’t covered by the FSA scheme, but instead only (notionally) by some Icelandic scheme. If not, hands up to being wrong on that. Is it wrong?

Icesave didn’t do anything financially weird or expensive
Don’t know about that – but thought it was in fact risky because overseas/not covered by the FSCS, and prima facie suspect because high yield. Still not clear that’s wrong.

Still, if it was all along covered by the FSCS, that is government underwriting and not really regulation, no? It also seems to mean (still going by what is written here) that the UK government didn’t ensure that LB/Iceland plc was tied in to reimbursing payments made under the UK scheme after LB went under (or was succeeded by some other entity).

149

piglet 01.10.10 at 8:55 pm

“no one has made a case on the merits that dsquared is wrong.”

You mean nobody has challenged dsquared on factual grounds? That is a weird reading of this thread. E. g. 55, 68, 70, 83, 88, 108, 113, 120, 121…

150

engels 01.10.10 at 9:05 pm

I must say, putting your savings in a foreign bank is something I don’t think it would occur to many people to do in the first place. That’s if they have savings — as Martin says, many of us don’t. Almost a tenth of people here don’t have any kind of bank account btw (if memory serves).

151

engels 01.10.10 at 9:51 pm

Still, without wanting to get hung up on the details I think there’s a lot to be said for suing those Johans for every last krona. Mostly because it sends a message but also because those whale-eating volcano monkeys deserve it.

152

novakant 01.10.10 at 10:03 pm

Isn’t d2 working in the city or something? Why do we have to go as far as Iceland to find the “guilty parties”? And what about Ireland’s little offshore center …

153

Alex 01.10.10 at 10:51 pm

I was under the impression (including from what has been written here) that LB wasn’t covered by the FSA scheme, but instead only (notionally) by some Icelandic scheme.

To offer bank accounts in the UK, it had to be covered by something *at least as good* as the FSCS, I think.

154

Tim Wilkinson 01.10.10 at 11:20 pm

But whether that was in fact the FS-sodding-CS or an Icelandic scheme is what decides whether the ridiculous or the non-ridiculous version is correct, isn’t it?

My understanding had been that as a non-UK bank, it would standardly be ‘covered’ by a scheme from its home country.

From what I can tell from a quick look at the FSA site – if the system hasn’t changed – the home country scheme is required by the EU Deposit Guarantee Schemes Directive to cover a minimum of €20 000, and that the bank has an option to ‘join with the FSA’ in a ‘top-up’ scheme if its coverage is less than £50 000. I don’t know whether (but doubt that) Icesave had joined such a scheme (at whatever cost, or under whatever scrutiny, if any of either). In either event, ‘the home state scheme would have lead responsibility for claims’, with the FSCS responsible only for any topped up element.

Does anyone else happen to know what the facts are? I realise it’s a bit late to ask….

155

Chris Bertram 01.11.10 at 7:32 am

_You mean nobody has challenged dsquared on factual grounds? That is a weird reading of this thread. E. g. 55, 68, 70, 83, 88, 108, 113, 120, 121…_

Oh I do advise people to go back and check the “factual grounds” adduced in those comments. I think you’ll find that dsquared got the relations between Icelandic politicians wrong, a mistake that’s tangential to the main issue. Apart from that, I don’t see many facts, just some irrelevance from piglet about GM and a load of whining about “bullying” by the British and Dutch.

156

JoB 01.11.10 at 9:41 am

152- why don’t we? In the end the current global system was shaped by the external pressure of Iceland, Ireland, Barbados and the like. Of course that does not mean that we should not also be dealing with the financial gurus, e.g. by making sure the assets they hold in such countries are in scope for Iceland paying its dues.

157

novakant 01.11.10 at 11:00 am

Well since this is one of those CT does Daily Mail threads, facts are tangential as such.

158

Tim Wilkinson 01.11.10 at 11:28 am

Further to #154 (and not to Chris B @155, et al passim – the argument is largely about what has elsewhere been called, perhaps a touch dismissively, the mood music), a ream of reasonably firm factoids:

It looks like Icesave was ‘topped up’ – and approved by the FSA as such – probably in 2006. So the rough equivalent of GBP18K or so per individual, human, creditor was supposed to be covered by the Icelandic scheme, and the remaining 32K by the FSCS. Approving the top up must have seemed, as they say, a good idea at the time. It’s quite possible it was, given lack of precognition. Don’t know if any security or insurance was paid to get top-up status, or what risk assessment was made by the FSA before guaranteeing this hefty tranche.

7 October 2008 – Landsbanki collapses and is nationalised.

8 October 2008 – Landsbanki Freezing Order is issued, on grounds that The Treasury believe that action to the detriment of the United Kingdom’s economy (or part of it) has been or is likely to be taken by certain persons who are the government of or resident of a country or territory outside the United Kingdom. The actions in question would appear to consist of no more than being the recipient of the relevant funds, or conveying the instruction, to whatever fiduciary agents were holding them, to transfer them. Which is stretching things a bit, a suitably clubbable silk might just successfully argue…

Whether this really has theoretical legal significance I dunno. But can’t see British judges (even if sometimes OK on John Bull stuff like Magna Carta) finding that the UK govt had committed some tort relating to interference in money or fiduciary gubbins, nor for that matter that the contractual rights and obligations don’t match up properly. Plenty of room to find that the law turns out to have prescribed (cf predicted) just the position that the UK govt vaguely assumed it kind of did.

Also 8 October 2008 – Darling announces ‘Because this is a branch of a foreign bank the first call would be on the Icelandic compensation scheme which, as far as I can see, hasn’t got any money in it.’ He states that in the exceptional circumstances all Icesave retail deposits in the UK will be 100% guaranteed. It’s unclear that ‘retail’ is the same thing, but this apparently means (or will later be claimed to have meant) individual human beings.

This means that those with >50K were indisputably going to be bailed out to the relevant extent (total: ‘b‘)by (the Treasury via) the FSCS. The first c. 18K or part thereof (total: ‘i‘) was a bailout inasmuch as the Icelandic scheme wasn’t going to pay up. That portion of deposits falling above the c. 18K mark but below the 50K mark (total: ‘f‘) had been approved for ‘topped up’ coverage by the FSA, and was I suppose in theory the safest part – unless ‘topping up’ and ‘lead responsibility’ were intended to indicate that the second, FSCS, tranche was conditional in some way on the first tranche being paid.

6 Nov 2008 – Darling anounces that the full bailout of savers will cost 800m. That seems to refer to the extra cost to the UK govt, i.e. b. So supposing he was about right, b = 0.8bn.

Daily Mail & This is Money, 4 January 2010 says UK savers had 4.56bn in the bank. So i+f+b = 4.56bn. It also says that 2.35bn is the bit which the Iceland fund was supposed to have paid, i.e. over which the argument is all about, i.e. i. So f is, I reckons, 1.41bn.

The same source has the total number of savers as 298 000. From this and the assistance of Excel, we also know that the mean deposit was very roughly around the 15K mark. And – I think – that an absolute maximum of about 130 000 depositors could have had more than c. 18K in the bank, and that an abs.max. of about 90 000 could have had more than 50K.

(And the Times on 17 Nov 2008 says that 70 councils in England and Wales have exposure totalling 643m. Such institutional investors (these are not ‘savers’, as in ‘who will save the savers?’) are not covered AFAICT by any guarantee scheme. Now there is a spanner in the ointment because this article also claims that the 800bn figure I’ve allocated to b is actually i+b. But that doesn’t add up so this factoid gets rejected.

15 June 2009 – the governmment, having begun the process of repaying all human creditors in full, manages to get the Iceland government to agree to pay the 2.3bn of the money UK plc has already made a big start in forking out, and certainly at least in electoral terms pretty much committed itself to. The 2.3bn is to bear interest and repayments are to start in 7 years, being completed 8 years later. This is also in some places described as involving the Iceland govt accepting that it is already liable for the money under EU rules (ultimately, stable treaty obligations).

27 Aug 2009 (on some accounts) – IMF starts bailing out the UK govt, by delaying its reconsideration/renewal of emergency funding to Iceland in order to apply pressure on the Iceland parliament to approve the deal.

…some other stuff happens…

Groundhog day, 17 November 2009 (Times): Iceland govt says it will pay, after IMF payment of 1.3bn had the week before been stalled at request of Netherlands, UK and, er, Germany.

…then the other stuff…

So re: #154; neither the purely ridiculous nor the purely non-ridiculous version (#142 etc) is entirely correct; there were a quite a lot of small-deposit-ors (which might kind-of weakens my case – in broad brush if not strictly – in the FT-based disagreement with novakant); the UK government were very quick to cover Icelandic liabilities, which got the Icelandic bank/govt off the hook in terms anyway of the lis that depositors had with them; and the UKG also covered 800m of windfall bailouts covering the >50K tranche.

Outstanding questions, for some other web trawl:

What was the risk profile (objectively, from the semi-subjective standpoint of the info that was in an appropriate sense available to customers; sellers; the FSA)?

Is it a good thing thing that the smallest investors were – in theory – entirely reliant on the foreign scheme? Might a ‘bottom-under’ domestic supplement be preferable to a top-up? I mean, the whole point of the thing is to be there when things are going tits up, so assuming all schemes are equal under such circumstances is not obvously a good way to go.

And were the UK sufficiently diligent in transforming the pre-existing debt by Iceland’s scheme owed to depositors into a separate intra-governmental ‘loan’? And did the way they did it contribute to letting the desperate (not an eval. term) Icelandic institutions off the hook in moral – or at least rhetorical – terms?

And what did that/those ad-hoc treaties actually say? Does that make a difference?

Was there mis-selling, how much, by whom?

And has the UKG’s stepping in meant that those responsible for mis-selling are, as is possibly the case with the Icelandic comp. scheme, kinda sorta bailed out, in terms of having the claims corresponding to their liabilities wiped out?

At least, unlike claims, there is always exactly enough blame to go round (and economics, as any fule know it, is only concerned with scarce commodities)

159

NomadUK 01.11.10 at 12:37 pm

Pedantry hyper-corner: that’s the “=” of assignment, as found in programming, rather than of equality or identity…

Except in programming languages that were designed (as opposed to cobbled together) so that the assignment operator (.e.g, ‘:=’ in Pascal), is made distinct from the equality operator (‘=’) rather than using the equality operator as an assignment operator and then fucking up the actual equality operator (‘==’, as in, it’s so equal we said it twice!), which is what we’re all basically stuck with now and forever, thanks very much, Dennis Ritchie.

Okay, you can have your thread back now.

160

novakant 01.11.10 at 1:10 pm

#159

lol, == has always been my favourite example of hackiness – it’s almost cute

161

Tim Wilkinson 01.11.10 at 1:24 pm

more pedantry: ‘intra-governmental’ := ‘inter-governmental’

I relinquish thread too

162

ejh 01.11.10 at 1:31 pm

How does one apply to do a guest post? I’m thinking of writing one entitled Eejits – How The Irish Persistently Elected A Bunch Of Neoliberal Crooks And Collapsed Their Economy Into The Bogs From Whence It Came, But Fuck ‘Em, Because We All Know What They’re Like.

163

dsquared 01.11.10 at 2:25 pm

I’m already writing that one – it’s going to be a review of Fintan O’Toole’s latest book, “Ship of Fools”. Fintan O’Toole was one of the Irish commentators who throughout the bubble continued to write that a) it was, in fact, a bubble and b) that it was largely the creation of a very corrupt little oligarchy who had developed a sort of neoliberal mythology about themselves. As he tells it, Ireland had somewhat more corruption and somewhat less self-delusion than Iceland did but it’s a similar story. His book is also absolutely refreshing in its determination not to look for excuses outside Ireland or nasty foreigners to blame, and to try and use the crisis as an opportunity to remake Irish politics. It would have been very easy to blame it on the Brits and insist on the genuine underlying superiority of the Irish model, but he doesn’t do so.

164

dsquared 01.11.10 at 2:53 pm

Tim, #158 – the crucial bit is between 7 and 8 October in your chronology (the sequence of events is very murky and disputed by I agree with your version). The govt. of Iceland nationalised Landsbanki, seemingly guaranteeing its liabilities (this is certainly what it wanted creditors to believe). It then announced that the guarantee would only be extended to Icelandic depositors, which appears on the face of it to be illegal under EEA treaties. The UK government then acted to pass the freezing order, in the same way in which any creditor of an insolvent business would act to freeze assets when it had a suspicion that they were about to be moved offshore. Then there were all sorts of negotiations under which the UK agreed that (despite the fact that Landsbanki was nationalised and thus the institutional depositors had a pretty good claim against the Icelandic government on the face of it) it would treat this as if Icesave had been an insolvent subsidiary rather than a branch, paying out under the UK scheme in exchange for an indemnity from Iceland. So this was already a massive concession, which Iceland then tried to renege on.

165

Richard J 01.11.10 at 3:32 pm

So this was already a massive concession, which Iceland then tried to renege on.

I think that’s the key point here – the technicalities of the relevant treaties/directives etc. or even necessarly the sequence of events aren’t that relevant.

If Iceland were to default, I personally think they’d have a good argument; however, what they’re trying to do if get the (acknowledged) debt expunged without having to suffer the consequences. It’s the kind of play you’d expect from a sleazy property developer (excuse the tautology), not from a sovereign nation.

166

ejh 01.11.10 at 4:24 pm

#165 – or from a bank.

Actually it’s the trying-to-escape-the-consequences bit that I really don’t see. The Icelandic state isn’t in a position to force anybody to loan it any money. If they do something which the financial markets (whose confidence, as I understand it, we all need to regain, rather than the other way round) or the IMF don’t like, those financial markets or that institution will perforce say “we’re not lending to these people, they can’t be trusted”. If the referendum were to pass and that meant Iceland were to do something which was regarded as cheating, won’t they just tell Iceland to get stuffed?

167

Richard J 01.11.10 at 4:32 pm

that meant Iceland were to do something which was regarded as cheating, won’t they just tell Iceland to get stuffed?

Quite. That’s what, without putting words into D^2’s mouth, is what I think has particularly annoyed him about the affair…

168

dsquared 01.11.10 at 4:35 pm

If the referendum were to pass and that meant Iceland were to do something which was regarded as cheating, won’t they just tell Iceland to get stuffed?

this is the bit which Iceland (or rather, apparently, Financial Dynamics Ltd, on their behalf) are referring to as “bullying”. Iceland has got huge economic problems (because its banking system is bankrupt) and needs to carry out a painful process of readjustment. This readjustment could be made somewhat (not much, but noticeably) smoother by a loan from the IMF. In general, the IMF does not “lend into arrears”[1], by which is meant lending to countries that aren’t paying their debts or haven’t reached an agreement to reschedule them. Iceland looks like it would fall into this category, which is why it wanted to reach a rescheduling agreement with the UK and Netherlands, which is the one that the referendum is about. Meanwhile, Iceland’s PR people are wandering around claiming that the Icesave liability (which has already been reduced and over which the Icelandic negotiators have been very bad and not very candid negotiators) ought to be cancelled, seemingly on the ancient legal principles of “they called us terrorists!” and “we’re a small rich country and want the money”.

[1] This was the original principle – actually the IMF does a hell of a lot of lending into arrears these days, but it is all in the context of debt relief initiatives for the world’s poorest countries, of which Iceland is not even nearly one.

169

Henry 01.11.10 at 5:22 pm

dsquared – agreed that the O’Toole book is very good and perhaps we can debate it then – but the one bit that I think is a bit off (having read 2/3rds of it – perhaps it is in the closing bit) is that there is diddly squat about the role of the social partners in it, apart from an offhand acknowledgment in chapter one that maybe the process of social partnership had its own problems. The supine I’m-alright-Jack-ism of the unions (see under Eircom: privatization thereof) wasn’t a direct cause of the shit hitting the fan, but certainly helped contribute.

170

alex 01.11.10 at 6:20 pm

“social partners” – always a LOL moment there. It’s like when the French press report that a company is ‘menaced with the threat of a social plan’ [= structured redundancies, after a lot of shilly-shallying about]. Euphemism treadmill, here we come…

171

dsquared 01.11.10 at 6:25 pm

No, it isn’t in the last third either – that’s a very good point.

172

dsquared 01.11.10 at 6:26 pm

by the way, “writing” in #163 should be taken in its usual contextual sense of “thinking about writing”, certainly not in any sense that would discourage you from doing one instead.

173

IM 01.11.10 at 7:23 pm

I still don’t understand what the referendum is about. As far as I remember Iceland has struck a similiar deal with Germany. The savers will get their money back from the failed banks, financed by a german government credit.

Now this credit is smaller because the volume of the deposits of german savers in Iceland seem to be smaller. But there is no revolt in Iceland about that obligation. Why? The principle seems to be the same.

And if the obliagtion to the UK and the Netherlands is not challenged, as the commenters from Iceland claim, what is the point of the referendum?

174

Tim Wilkinson 01.11.10 at 7:48 pm

Richard @165 – On what’s relevant, and on the line between default and ‘sneaky, cheeky default’: the matter of the debt being ‘acknowledged’ seems to be both a bit unclear and a bit irrelevant. Not being judges, what the Icelanders happened to think about their preexisting obligations is pretty irrelevant. Perhaps an admission of fact on which liability rests? But not that much fact was really disputed was it? Maybe ‘soft’ facts about ownership, corporate status.

Or does ‘acknowledging’ the debt mean ‘assuming the burden of the debt regardless of the preexisting situation’? If so, it’s not an acknowledgement, and taking on obligations under a new treaty is the only relevant thing (especially since the new treaty – it seems, on the slender grounds available – purported to extingush whatever was left of the previous relationship between the guarantee fund and the depositors, as did the UK govt paying them all back). So on that view the issue is – did they sign up to a binding treaty, and the answer is, it seems – not yet.

And I’m not quite so sure about what one should expect from your average state actor, either, in terms of self-denying punctiliousness…

the sequence of events aren’t [necessarily] that relevant

Well, my little timeline was about (a) looking at the UK side, in particular from the perspective of a government eager to keep savers happier than some of them have any right to expect, and acting precipitously and a (perhaps) a bit high-handedly; and (b) giving dates in case (ha!) anyone wanted to check the news stories.

On (a), I do really rather wonder somewhat whether the 800m payout was really so urgent, and really merited by the >50K brigade. (Or what Martin @115 said.)

Having had another look at the numbers gleaned earlier, and (obviously) assuming them correct:

(tranche boundary issues ignored)
.
tranche | tot(bn)| max payout| max poss persons| max poss .|min poss mean payout(K)
. . . . | . . . .| /person(K)| @ max payout(K).| persons(K)|tranche |cumulative
0-18K . | 2.35 . | 18 . . . .| 131. . . . . . .| ? . . . . |. . . . |
18K-50K | 1.41 . | 32 . . . .| 44 . . . . . . .| 131 . . . |11. . . | 29
50K+. . | 0.80 . | ?. . . . .| ?. . . . . . . .| 44. . . . |18. . . | 68

It’s possible to wring from them an absolute minimum possible figure for the mean payout to those falling into the top tranche – the UK govt saver-bailout tranche (b). That figure is 18K out of b, 68K in total received. This (an absolute minimum figure which is certainly an underestimate since it assumes that everybody falling into the middle tranche (f) also falls into b), suggests to me that the 0.8bn in entirely superogatory tax-funded bailouts for the top-tranche savers actually included quite a lot of seriously big amounts. Well, it didn’t take very long to do. That’s my excuse.

Also, whether or not they were all about to buy a hard-earned annuity with it, I still want to know whether there wasn’t someone else, like mis-sellers (is this way off?), who might have been made to stump up some contribution. Also, whether some more of that unscarce blame might attach itself to the FSA. I mean yes, ‘everyone’ (ahem) got the subprime/housing bubble wrong – and I don’t know if Landsbanki was an unpredictable consequence of that or similar – but did this high yield offshore account really look that innocuous, or ‘conservative’ at the time? (and what engels said @150)

175

Tim Wilkinson 01.11.10 at 7:56 pm

d^2 @164 – murky indeed, certainly from the pov of one trying to find out by skimming through Google News…

And is there some tension between:
The UK government then acted to pass the freezing order, in the same way in which any creditor of an insolvent business would act to freeze assets
and
the UK agreed that…it would treat this as if Icesave had been an insolvent subsidiary rather than a branch…a massive concession

I mean the UK govt immediately started (a) committing itself to (much more than) covering (what would otherwise have been) the Icelandic guarantee, and (b) on your account acting as if this was a case of insolvency.

Whether Iceland exactly definitely reneged on anything is pretty much soundtrack territory anyway in the context of this kind of negotiation (and unratified treaties are not, er, ratified treaties), but it kind of sounds like the UK had already decided what the deal would have to be, unilaterally acted on it and then asked the Icelanders if they wouldn’t mind signing on the dotted line.

On an analogy (perhaps inapposite) with common-law contract and estoppel/quasi-contract, that would not be too clever – were it not for the unbounded discretion of the IMF. And from the point of view of negotiation, it is a bit arrogant and non-consensual and apt to give the other side every excuse – even reason – to resist. But I don’t know – that’s just a sketch of what looks to me like a possible interpretation of events.

176

piglet 01.11.10 at 11:35 pm

What 166 and 175 said, and some addition. Another annoying characteristic of this debate, apart from baseless comparisons, has been the constant mingling of moralistic and legalistic arguments – e. g. “It’s the kind of play you’d expect from a sleazy property developer (excuse the tautology), not from a sovereign nation.” But that moralism is both legally irrelevant (the legal case against Iceland has absolutely not been established) and misplaced because those who are expected to hold the tab are not in general the ones who have caused the mess and/or benefited from it. This has been debated back and forth but let me restate it. Whatever happens in this case will be unfair to many people, whether Icelandic taxpayers, British taxpayers, or savings account holders. Most of these people shouldn’t suffer from the folly of neoliberal ideologues and irresponsible bankers. If there were any justice, Goldman Sachs wouldn’t be making record profits after being rescued by its cronies in the administration while teachers and bus drivers are being laid off all over the country as a result (at least partly) of financial industry recklessness. This thread has been such a waste, a waste of time and a waste of moralism and (probably faux) outrage that need to be directed elsewhere. If you want to moralize, Iceland is simply the wrong target and what I wonder is whether this target was chosen in order to avoid talking about the actual culprits.

177

Richard J 01.11.10 at 11:53 pm

(the legal case against Iceland has absolutely not been established)

And almost certainly never would have been, for the pragmatic reason that any sensible lawyer would have recommended that Iceland settled long before it came to court. Helpful hint: Reneging on an explicit committment to pay does not go down well with judges.

178

Tim Wilkinson 01.12.10 at 12:26 am

Hey Richard J – I liked your post so much, I’m definitely, absolutely going to give you 500 pounds, and you’re welcome to sue me if I don’t.

179

piglet 01.12.10 at 1:15 am

What planet do you live on Richard! Even without citing the GM workers who’s longstanding contractually promised benefits were nixed with the stroke of a pen (an example that some people here don’t like to be reminded of, I wonder why Chris 155?): Judges do not usually resolve legal disputes by resorting to statements that some government official made at a press conference.

180

IM 01.12.10 at 1:28 am

But GM was actually insolvent, even if only for a month.
Iceland isn’t insolvent. And if Iceland is willing to to keep its failed banks solvent, it can’t default on only a part of the banks obligations. And I think it is legally obligated under EEA rules for up to 21,000 Euro per saver, whatever their country of origin.

Furthermore you can’t discriminate against the citizens of other EEA-Countries as a a member of EEA. So if Iceland guarantes the deposits of its citizens above the 21,000 limit, it has to do the same for the citizens of all other EEA countries.

There isn’t a “I don’t like the government of the UK” exception in the relevant EU rules, I think.

181

piglet 01.12.10 at 2:16 am

“But GM was actually insolvent, even if only for a month.
Iceland isn’t insolvent.”

Aaarrrrghhhh, the clone army of twisted comparisons is attacking again! Or is it a Hydra that grows seven heads for each one cut off. I can’t keep this up much longer. I’m afraid I have been infected with the virus of deadly metaphors. There is no escape…

Ok one last attempt: Iceland is a country. The United States is a country. GM and Landsbanki are/were insolvent private enterprises taken over by the state. Comparing Iceland to GM is wrong wrong wrong! The proper comparison is Iceland to the U.S. Iceland the country did not incur the liabilities at dispute here. Right? Right!

182

novakant 01.12.10 at 6:09 am

Well, there isn’t a “if they don’t suit us at a particular point in time, we’ll just break them”-exception in the EU deficit rules either … All this stuff falls into the “too big to fail area”, which is also why the comparison with GM is actually quite apt.

183

Richard J 01.12.10 at 8:01 am

Tim – firstly, that valid contracts require consideration is a quirk of English law, and doesn’t necessarily apply in other jurisdictions.

Secondly, if you don’t think that responding to a specific question put to you by someone with whom you have no contractual relationship with information that proves to be incorrect can create a duty of care, I suggest you look up what happened to BDO Binder Hamlyn…

184

Chris Bertram 01.12.10 at 8:10 am

_what I wonder is whether this target was chosen in order to avoid talking about the actual culprits._

_an example that some people here don’t like to be reminded of, I wonder why Chris 155?_

Piglet, master of unsubstantiated innuendo. The simplest way to avoid talking about something is to avoid talking. And why I, in particular, have reasons not to like being reminded of developments in the US auto industry is quite obscure to me.

185

ajay 01.12.10 at 9:42 am

you can’t discriminate against the citizens of other EEA-Countries as a a member of EEA. So if Iceland guarantes the deposits of its citizens above the 21,000 limit, it has to do the same for the citizens of all other EEA countries.

This, really, is the core of the matter. The point is not that the UK decided to guarantee its citizens’ deposits above the minimum level. It’s entirely allowed to do that, and it can’t ask Iceland to foot the bill. The point is that Iceland wanted to guarantee its own citizens to a higher level than it was ready to recompense UK depositors. What the UK government was doing by way of additional guarantee is irrelevant – Iceland can’t decide to treat its own citizens any better than it treats UK citizens with regard to deposit guarantees.

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Richard J 01.12.10 at 10:27 am

Iceland can’t decide to treat its own citizens any better than it treats UK citizens

As an aside, that the ECJ takes this point very seriously has led to many rather embarrassing defeats for tax authorities over the past two decades.

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Tim Wilkinson 01.12.10 at 12:08 pm

ajay @184 – The point is not that the UK decided to guarantee its citizens’ deposits above the minimum level.

Well it may not be the point to you, but it jolly well is to me! Or at least the 0.8bn of post hoc windfall compensation (not really a guarantee) is.

Just how objectively shocking the effrontery of Iceland’s PR really is, given the legal position, is indeed a question too. Though the asymmetry involved seems to require that the Icelandic government and the Icelandic compensation scheme have merged, or anyway that compensation going to Icelanders is rightly seen as in a relevant sense the same money that should be contributing to tier i of UK deposits, and other – at least somewhat murky – issues.

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ejh 01.12.10 at 12:17 pm

Even without citing the GM workers whose longstanding contractually promised benefits were nixed with the stroke of a pen

Just as an aside, am I alone in suspecting that this will one day happen to public sector pensions in one country or another?

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Tim Wilkinson 01.12.10 at 12:31 pm

Richard J @182 – that valid contracts require consideration is a quirk of -English- common law

Yeah, I know, as flagged at every mention, as is the rather man-in-pub nature of the legal discussion in general, mine in particular. Civilian and Euro jurisdictions are I freely confess a bit of a mystery to me – my impression is civilans tend to be (a) more formalistic and (b) take more seriously the ‘meeting of minds’ than the anglo variety where contracts are concerned.

responding to a specific question put to you by someone with whom you have no contractual relationship with information that proves to be incorrect can create a duty of care

Yeah, I know. Again all this only relevant by dubious analogy, but a duty of care to tell the truth wouldn’t have the effect of holding one to the truth – about what is owed, say – of what had been said. If we’re talking reliance, we get into something very like estoppel/quasi-contract – and the point might be that ther wasn’t any reliance on anything, just an attempt to recover hastily spent money.

I’m not arguing a case, just speculating about teh possibilities and in a sketchy way their plausibility. The UK govt could well have a perfectly good case, and it’s hard to resist the conclusion that the Icelanders are, from a bourgeois-moral perspective, pulling a fast one, a blinder, or some wool over the general public’s (but not the arbitrary Leviathan IMF’s) eyes. Cheer, boo or go about one’s business to taste.

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Tim Wilkinson 01.12.10 at 12:40 pm

ejh @187 am I alone in suspecting that this will one day happen to public sector pensions

No we are at least two. And plenty of private-pension-holders are acting on the same suspicion – bit of a race to the bottom/pisoner’s dilemma/self-fulfilling prophecy.

A propos nothing much, that consideration also moderates (or should) any vulgarly personal Spartist condemnation of them, of course…

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JoB 01.12.10 at 1:03 pm

187- if you allow governments to compete with regard to pensions it is unavoidable

192

ejh 01.12.10 at 1:06 pm

What does that mean?

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Tim Wilkinson 01.12.10 at 2:09 pm

BTW, probably hopelessly idiosyncratic, but I was tickled by the refreshing matter-of-fact openness of Alastair Darling’s announcement:
“Because this is a branch of a foreign bank the first call would be on the Icelandic compensation scheme which, as far as I can see, hasn’t got any money in it.”

A touch of the Streeb-Greeblings about it, I thought, as in:
-So, Sir Arthur, how has business been?
-I would answer that in two parts: business hasn’t been, and there hasn’t been any business.

[BTW2, a penance to the all-seeing gods of pedantry. @somewhere-or-other, ‘precipitously'<-'precipitately'.]

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Barry 01.12.10 at 3:14 pm

piglet:
“What planet do you live on Richard! Even without citing the GM workers who’s longstanding contractually promised benefits were nixed with the stroke of a pen (an example that some people here don’t like to be reminded of, I wonder why Chris 155?): “

Because if people realized that ordinary working schmucks could be wiped out by corporate bankruptcy, they might not sympathize with banking elites collecting large bonuses after driving their companies into bankrupcty-except-for-a-government-bailout.

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piglet 01.12.10 at 3:22 pm

I posted after 180 “awaiting moderation”, hasn’t appeared. What’s going on here moderator?

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JoB 01.12.10 at 3:31 pm

191- when you let low tax governments suck the life out of high tax governments (& specifically those that are small enough to get away with it) – then the latter will have no option but to cancel all of their built up benefits.

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dsquared 01.12.10 at 4:01 pm

Iceland is a country. The United States is a country. GM and Landsbanki are/were insolvent private enterprises taken over by the state. Comparing Iceland to GM is wrong wrong wrong! The proper comparison is Iceland to the U.S. Iceland the country did not incur the liabilities at dispute here.

Wrong. The USA never guaranteed any liabilities of GM, and got its ownership stake after having invested debtor-in-possession financing after GM’s Chapter 11 bankruptcy. The GM pensioners (and bondholders, and the rest) got their benefits cut because that was the deal the government offered, the alternative being “well, you’re bankrupt, raise money on better terms if you think you can”.

Landsbanki’s liabilities were, explicitly, guaranteed by Iceland – they tried to selectively guarantee the Icelandic depositors, but you can’t actually do that outside of insolvency. Then they tried the Nyi Landsbanki strategy, variously described here as “weaselly”, “sleazy” etc (because it was).

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Tim Wilkinson 01.12.10 at 4:42 pm

JoB @196 – to some extent, perhaps, but I don’t think an Iceland-style phenomenon is probably a very big component. This is perhaps a weak point and even a bit of illegtimate whataboutery, but just for some perspective, the Ministry of Defence’s own figures put the amount spent on one years’ fighting in Afghanistan at about the same amount as the Iceland figure. And as I’ve been wittering on about at some length, a figure of about 1/3 of that was gratuitously handed over to big-balance savers by the UK govt.

And those receiving that could not possibly (in logico-mathemtical terms) have received a mean payment from that tranche of less than 18K/person (as demonstrated subject to accurate input figures @174), and that is undoubtedly a massive underestimate of the true mean figure which I would guess is several times that amount. So the actual payouts to a significant number of these individuals seem likely to have been in the hundreds of thousands – hundreds of thousands of which they were apparently careless enough to dump into a largely unguaranteed overseas account. Or they were wrongly advised by commission-conflicted advisors who seem to have avoided any scrutiny, though I imagine that kind of thing is more likely to have affected those in the lowest tier.

Which is why I’m banging on about that, and leaving the Icelandic side of the unlimited-sum blame-game to others.

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ejh 01.12.10 at 5:24 pm

I’m not sure that my question in #166 was understood, or more likely I’ve failed to grasp the answer. So if I could have another go….if Iceland’s referendum, and a decision not to proceed as per the relevant parliamentary bill, is pulling a stroke, and if the IMF et al are capable of seeing that and (if they agree) will punish Iceland for it by not lending further, then how is Iceland pulling a stroke? Won’t they be prevented from getting away with whatever people think they’re trying to get away with?

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piglet 01.12.10 at 5:24 pm

“Landsbanki’s liabilities were, explicitly, guaranteed by Iceland” .

Only a part, probably a small part, was guaranteed. This has already been discussed ad nauseam. My argument was a retort to the claim (56) “that all of the liabilities of Landsbanki, wholesale deposits, local authorities and all, would become liabilities of the Icelandic sovereign”, and to the subsequent claim in 180. That claim is patently false, can we lay this to rest now?

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Tim Wilkinson 01.12.10 at 7:07 pm

ejh @199 seconded. It almost looks a bit as though Iceland’s president is trying to retaliate against the UK, possibly at some cost to Iceland itself. Without making any moral comparisons, is this a bit like Castro in Angola; ‘irrational’ behaviour which for Western strategists does not compute? Whether or not it is so understood (and assuming it is the right description of the phenomena), is that the real basis of the outrage?

In the same spirit of bona fide curiosity and bafflement, some questions arising in relation to piglet’s #200:

(1) Does the case of GM provide a suitably justificatory precedent (within the operative proprietarian frame) for a govt repudiating commitments of a firm once it’s nationalised? (If the quasi-legal property-rules side of things is settled, any moral-justificatory force might be thought to apply a fortiori to Iceland, since that debt is supposed to be owed to a foreign state rather than human beings’ pension funds.)

(1.1) Does the question of formal bankruptcy make much difference, if (if: was it?) Landsbanki was in effect bust and had little or nothing in assets?

(1.1.1) Is, in point of (legal) fact, nyi Landsbanki the same entity as Landsbanki, and does this make a difference?

(1.1.2) What, if any, difference does it make, wrt to the (dis-)analogy with GM, that the Iceland govt didn’t (if it didn’t) put money in when it took over?

(1.2) If the issue is that by avoiding formal bankruptcy the Iceland govt bypassed the proper order of precedence of creditors, was the UK trying to do something rather similar in favour of its own citzens with the freezing order?

(2) What is the relationship between (a) the Icelandic compensation scheme, (b) the one or two Landsbankis, (ç) the the Icelandic government, and their assets and liabilities?

(2.1) Were Icelanders recompensed from some identifiable, non-empty, compensation fund which should have been earmarked for and shared equally between, all guaranteed savings, and does this question make any difference?

(2.2) Did the UK government’s recompense of UK savers, on the basis of an apparently unilateral (was it unilateral?) decision, extinguish thoses savers’ claims against the Icelandic comp. fund, and thus the corresponding legal liabilities of that fund?

(2.2.1) If so, did the UK government in the process acquire a claim of its own under some legal principle or other?

Any answers to some or all appreciated.

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Tim Wilkinson 01.12.10 at 7:15 pm

re: (1.1) – maybe that should be ‘net assets’

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JoB 01.13.10 at 9:29 am

Tim- and compared to death all illness is negligeable … the issue with Iceland (or Ireland or ..) is the structure of it. The ‘success’ of non-redistributive policies erodes the bases of acceptance of the redistributive policies. Via international trade the bar is readjusted to non-redistribution. In a following crisis of the non-redistributive policies no holds are barred: there is no crisis, there’s a crisis because we continued to redistribute too much and so on. Until, finally, the right spins it towards libertarianism and finds supporters on the left in the anarchists; and we all suddenly are under a compulsion to find it ‘just a little amount’ and typical coercion of innocent individuals if they are called to take on their part of the burden of a crisis under the form of relinquishing part of the gains they won under the non-redistributive policies.

It is unfair and specifically because it is apparent that it is part of a dynamic that cannot but find an equilibrium in which, ultimately, e.g. all collective pension arrangements are under pressure.

Afghanistan may be many things but not part of that diabolical dynamic of neoliberal policies.

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alex 01.13.10 at 12:08 pm

“compared to death all illness is negligeable”. Oh, hardly. I’ll trade you ten years of searing agony for instant oblivion any day. This is also part of my argument for nuking south-west Asia.

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JoB 01.13.10 at 1:09 pm

alex, touché and :-) but you got my drift I guess.

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Tim Wilkinson 01.13.10 at 5:35 pm

JoB: The ‘success’ of non-redistributive policies erodes the bases of acceptance of the redistributive policies

Yeah, OK let’s make an example of some group of people selected to represent (preferably accurately) Icelandic neoliberal excesses. I think the Icelanders themselves might have got the message though, whatever gets paid to whomever.

But meanwhile in the UK all the ‘savers’ (that’s savers with a nice trickle of income above inflation, thank you very much – to cover the opportunity cost of not spending it all straight away on pizza and cocaine perhaps) get all their money back, even when they are (from where I’m standing) rich as Croesus, straght away, as if it were their right. Because all that stuff about the entrepreneurial burden of risk isn’t to be taken too seriously when the downside comes along, and all this stuff is just a blip which is all the fault of Bernie Madoff or something, and everything’s fine once the latest crop of bad apples have been paraded in chains.

And Iceland as a whole is looking a bit like a Bernie Madoff, which may or may not be somewhat accurate so far as it goes, but is also, and more importantly, something of a distraction.

(Meanwhile people who just need a money transfer and storage utility to get their pay or dole cheque into food and clothing form have to use remarkaby similar-looking banks (thanks to the experiment with ‘free’ banking which made it seem costless to the politicians, and to some extent thanks to the big bribes to short-sighted building society members to get them to sell out). Thus they are exposed to every trick in the bankers’ well-developeed arsenal aimeed at trying and get them up to the very fullest extent of debt that banks think will give them the biggest trickle of minimum payments given the expected rate of individual ruin and misery…gasp for breath…)

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JoB 01.13.10 at 7:22 pm

I think novakant went over that.

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Tim Wilkinson 01.13.10 at 9:41 pm

Oh

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piglet 01.14.10 at 12:14 am

“Afghanistan may be many things but not part of that diabolical dynamic of neoliberal policies.”

I don’t believe there is any country not touched by that diabolical dynamic of neoliberalism, and least of all Afghanistan which was destroyed in a bestialic war – now in its fourth decade – in part because Western neoliberals strategically decided they had more in common with Islamic terrorists than with a nominally socialistic government threatening to provide education and health care to its citizens and according civil rights to women.

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JoB 01.14.10 at 8:59 am

Good point, actually.

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