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Tuesday, January 29, 2013

Blowing away the backstop

Iceland wins a legal victory with serious international ramifications:
Iceland won a sweeping victory in a court fight over its responsibilities to foreign depositors in Icelandic bank Landsbanki, which failed in 2008. The court of the European Free Trade Association on Monday said Iceland didn't breach European Economic Area directives on deposit guarantees by not compensating U.K. and Dutch depositors in Landsbanki's online savings accounts, known as Icesave accounts.
Iceland has blown a large hole in the entire bankocracy.  First, it has shown that a country materially much better off to blow off the bankers, refuse to bail them out, and let them go under than accede to their demands.  Notice that Iceland is not having any trouble borrowing money despite the dire predictions of those running interference for the banks.

Second, it shows that the dubious legal claims about "debts" that are somehow assumed to be magically passed on to parties who were not involved in the debt contracts are false.  And third, it proves that the foreign "deposit guarantees" are absolutely nothing of the sort.

This is serious, because, as Karl Denninger observes: "There are other nations where demands have been made for citizens to cover other, non-citizen losses.  I can think of a few... like, for instance.... Greece.... What this decision does is provide a solid backstop to the opinion that such a guarantee program does not reach beyond the fund and into the general finances of the nation involved, nor can that nation be forced to do so retroactively."

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41 Comments:

Anonymous dh January 29, 2013 9:16 AM  

Iceland has followed the same advice that individuals in financial trouble follow - stop the bleeding, balance the books, default on unsecured debt, and start building for the future.

Anonymous Anonymous January 29, 2013 9:38 AM  

I love the fact that Iceland has had no trouble borrowing anyway.

Canada didn't bail out any banks (didn't have to fortunately). Prior to 2008 Canadian banks were insisting they should be allowed to merge (known as the Big Five). Said they 'couldn't compete' with the larger U.S. banks...

Still can't figure out who owes what to whom...

- Apollyon

Blogger tz January 29, 2013 9:54 AM  

My only caution is there can often be legalese buried in the opinion and Greece, Ireland, Spain, etc. may have signed different treaties and a small depositor of a retail bank account is not a sophisticated investor investing in derivatives.

Greece, in particular used Goldman Sachs to manipulate their way into the Euro - if they have unclean hands they can't plead that only some frauds should be bailed out and not others. However if the people of greece want to prosecute and execute those involved, both foreign and domestic it would be a good thing.

Blogger tz January 29, 2013 10:00 AM  

Iceland can only borrow where they are deemed to be creditworthy given all the risks. No illusions or backdoors.

The PIIGS are in limbo - the corrosive effect is that what might be creditworthy will dissolve in a crash when the zombies deanimate, and those won't be bailed out. The structure is about keeping the zombies animated.

Japan has been successful in this for 20 years - their country has two lost decades and they are now teetering, but no zombie has been allowed to turn into dust. They have won the battles so far, but at great cost.

Blogger IM2L844 January 29, 2013 10:02 AM  

Yes, but isn't it telling that despite Icelanders overwhelmingly rejecting a proposal to repay the deposits, the administrators of Landsbanki nevertheless began repaying priority British and Dutch claims. Some estimate up to 90% of those priority claims have already been repaid.

I have no doubt that those priority claims were within the global banking sector and the private individuals who were not priority will once again get royally screwed.

Anonymous Susan January 29, 2013 10:07 AM  

In regards to Canada, I found it highly amusing that their Central Bank put the wrong maple leaf on their newly printed currency. The one they used is native to Norway. I'm not a botanist and yet I can tell the difference.

Anonymous Thales January 29, 2013 10:15 AM  

Rhetoric: Why can't we get that here, insted of a tax hike to pay for the indefinite bailout of our banksters?

Anonymous zen0 January 29, 2013 10:48 AM  

What country has people in power with the guts or integrity to follow Iceland's example?

Anonymous zen0 January 29, 2013 10:51 AM  

their Central Bank put the wrong maple leaf on their newly printed currency.

It would not surprise me if it was later discovered that they did it on purpose.

Blogger Nate January 29, 2013 10:54 AM  

Iceland has been the rockstar of this whole epic clusterfuck. No doubt about it.

Anonymous Anonymous January 29, 2013 11:13 AM  

Re: Canadian maple leaf...The Bank of Canada claims it was deliberate as it is a "stylized blend" of the various maples that grow in the country. Sure it is.

It is evidently a 5 lobe leaf instead of the typical 3 lobe leaf (as seen on the flag). As one prof said: "It's almost Canadian in the fact that we can't even get our symbols right."

Fortunately nobody cares...

- Apollyon

Anonymous JartStar January 29, 2013 11:19 AM  

When it really hits the fan I have little doubt that most countries will stiff their creditors and circle the wagons.

Anonymous civilServant January 29, 2013 11:29 AM  

So. The banker/government cabal has no ultimate control over the courts.

Anonymous Noah B. January 29, 2013 11:30 AM  

"They have won the battles so far, but at great cost."

Unfortunately I'm afraid we haven't seen anything yet. Japan's debt to GDP ratio is horrific, they no longer have significant trade surpluses, and they continue to spend money they don't have with total abandon. Japan is likely to be the force that brings the whole global economy crashing down.

Anonymous Vidad January 29, 2013 11:35 AM  

"In regards to Canada, I found it highly amusing that their Central Bank put the wrong maple leaf on their newly printed currency. The one they used is native to Norway. I'm not a botanist and yet I can tell the difference."

That's hilarious. As long as the bankster syrup keeps flowing...

Anonymous Noah B. January 29, 2013 11:48 AM  

Congratulations to Iceland, though, for saying no to bankster tyranny.

Anonymous zen0 January 29, 2013 11:49 AM  

"Fortunately nobody cares...

- Apollyon"

That's what TPTB count on. Trash the emblems, and you trash the morale, then you can impose whatever emblems you want to steer the body politic as you see fit. That is why the maple leaf flag came to be in the first place.

Anonymous cheddarman January 29, 2013 11:54 AM  

How long until the judge is sleeping with the fishes?

cheddarman

Anonymous Cryan Ryan January 29, 2013 12:01 PM  

Zeno asks, "What country has people in power with the guts or integrity to follow Iceland's example?"

Probably none.

Iceland is virtually all white, with only a tiny sprinkling of non white minorites. They are healthy, happy, long-lived, and optimistic people.

Eventually, someone will figure out how to make a profit building tenament buildings for (imported) low income, low IQ, unwed black mothers, (Mali, Darfur, Somalia anyone?) and the system will go to hell from there.

Borrow, steal, rob, loot...go bankrupt...etc.

Anonymous Stilicho January 29, 2013 12:22 PM  

You people do realize the absolute horror with which the bankster class looks upon Iceland in general and this decision in particular, right? This cannot be allowed to stand or to gain widespread notoriety. Just imagine what could happen should the hoi polloi wake up and realize that they don't need the banksters, much less need to bail them out... the horror...

Anonymous Supernaut January 29, 2013 12:44 PM  

their Central Bank put the wrong maple leaf on their newly printed currency.

It would not surprise me if it was later discovered that they did it on purpose.


Of course they did.

It's as ludicrous as the Federal Reserve putting Andrew Jackson on the $20.00.

Anonymous Rantor January 29, 2013 12:54 PM  

@ Stilicho

The Icelandic path to fiscal freedom is about the only path that works. Bankrupt banks must go bankrupt. Stop the taxpayer funded bailouts. End the government-led stupidity now. The bankers will escape with enough money to live out their lives in splendid comfort. Might have to sell their Boeing Business Jet though (or lease it to NetJets).

Anonymous Orville January 29, 2013 1:49 PM  

Nice. Now when can we tell the squid to piss off?

Anonymous Red Comet January 29, 2013 2:18 PM  

A couple more decisions like this and the US/EU will unearth some new intel that says al-Queda has a stronghold in Reykjavik. They had to glass the country to save it from the islamos you see.

Anonymous Unending Improvement January 29, 2013 2:37 PM  

Vox is now a Krugmanite. Interesting.

Anonymous Azimus January 29, 2013 2:46 PM  

I'm all for letting the bank fail and clearing the debt, but in the case of Iceland it was not yet sovereign debt, but in thecase of Greece, et al, the money was borrowed by the government itself. How can Iceland's ruling help in this case?

Blogger Subversive Saint January 29, 2013 2:58 PM  

"Iceland has followed the same advice that individuals in financial trouble follow - stop the bleeding, balance the books, default on unsecured debt, and start building for the future." - DH

Amen to that... That is what it took in my own pathetic situation...

Anonymous Josh January 29, 2013 3:29 PM  

Vox is now a Krugmanite. Interesting.

That's a fascinating assertion. Can you elaborate on it?

Anonymous kh123 January 29, 2013 3:41 PM  

Krugman's estimation of "play money ad infinitum; therefore be fruitful and multiply".

Anonymous kh123 January 29, 2013 3:42 PM  

In other words, debt doesn't matter.

Anonymous dh January 29, 2013 3:48 PM  

Amen to that... That is what it took in my own pathetic situation...

It's the same big or small. There are a lot of "experts" out there that tell you never default - it's all lies. All those people out there who have scraped and begged and dodged to hold onto their own house, which is underwater, are financially silly. They would have been better to lose big in 2008, clear out all of their debt by default. By now they would be back to near-prime status.

Same goes with national finances. In 2008 the world was primed for the big one. Maybe we should have just let it happen. Lost our reserve currency status, and then started over. By now we would have probably been back to pre-crash nominal GDP levels.

Anonymous dh January 29, 2013 3:50 PM  

In other words, debt doesn't matter.

Private debts don't. Why should I care what some financial company promised someone in the UK or Germany? Because they were located on my soil I have to backup their absurd promise to pay? I didn't share the profits. I didn't get the lovely European vacations and imported sport cars, why should I have to live like a pauper for 30 years to make good on a promise made by someone else?

Anonymous Aeoli Pera January 29, 2013 3:54 PM  

Quick facts for Iceland.

The most interesting thing is that they are essentially a city state. A white, Christian population of 300K could conceivably practice democracy with some success.

Of course, I doubt it'll survive the retaliation of the dragons. If you're plugged in to that culture, watch for a wave of propaganda supporting an aristocracy of charismatic "leader" types. Hero worship stuff, like the profile pieces we get in Business Week all the time. It'll work because sheltered whites are liberal, gullible creatures.

Diagnosis: Switching to a monarchy is probably their best bet at this point. One man can withstand the influx of serpentine guile better than an aristocracy or a democracy can.

Anonymous kh123 January 29, 2013 3:54 PM  

True that.

Anonymous kh123 January 29, 2013 3:55 PM  

(@ dh.)

Anonymous Aeoli Pera January 29, 2013 4:02 PM  

Ya know, wouldn't it fit the historical pattern nicely if Iceland became a superpower? All that Anglo ingenuity and work ethic times Scythian ambition. In the short term, that's a really good bet. And all those broken windows will need fixing.

I see a lot of similarities with the British empire. Just throwing that one out there.

Anonymous Josh January 29, 2013 4:06 PM  

I see a lot of similarities with the British empire. Just throwing that one out there

You might be the only one.

Anonymous cheddarman January 29, 2013 5:12 PM  

How do you get Scythian ambition in Iceland?

I thought descendants of the Scythians would be living in eastern europe

Sincerely

cheddarman

Anonymous Aeoli Pera January 29, 2013 6:21 PM  

cheddarman,

I'm alluding to a particular conspiracy theory that says, basically, that dragons will go where the gold is.

Blogger LP 999/Eliza January 30, 2013 12:56 AM  

Good for them! Keep repeating "nein, no and that offer is unacceptable, goodbye."

Anonymous E. PERLINE January 31, 2013 12:13 AM  

When representatives employed by the people fail to see that the debt they create is unsustainable by the people, they might be considered criminal or mentally incompetent as borrowers. Their contracts might be declared null and void.

When representatives employed by the people fail to make their hiring practices best for the people who pay their wages, they might be considered stupid or disloyal. Their labor contracts might be declared null and void.

Let's place both cases under the heading of professional malpractice.

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