Thursday, March 11, 2010

Iceland: Destroyed By Financial Predators

Iceland is an island nation of 300,000 people in the North Atlantic, south of Greenland and west of Norway. Iceland used to have a very successful economy. But the financial criminals from Wall Street, the Hedge funds, the speculators, and eventually the International Monetary Fund, have ruined their economy and left them bankrupt and deeply in debt.

The economy of Iceland, just like so many countries in the world, has been destroyed by predatory financial groups such as the hedge and private equity funds that sit "offshore," in secret, with secret investors and secret transactions and secret criminal sources of money, acting like locusts swooping into countries and wreaking havoc, stealing everything that people own, then moving on with their loot to the next country on their hit list.

Unfortunately, Iceland was hit hard. Now the world leaders are moving in trying to take over that country. But the people are fighting back.

Basically what happened is that some financial speculators set up shop in Iceland and began loaning money at cheap interest rates, which always has the effect of causing assets to artificially increase in value. When interest is artificially held down, the cost of everything goes up.

When these financial speculators moved into Iceland, everything in Iceland began to increase in value, from their real estate to their stock market to everything else. Eventually people borrowed so much money that when the bubble burst, some people could not repay the loans. The banks engaged in so much speculation, Wall Street style, that they failed.

At that point, the government of Iceland had to decide whether to bail out the banks using the citizens' money, or just let the banks fail. In our country, the biggest financial institutions looted and stripped their own businesses bare by paying insiders hundreds of millions of dollars in bonuses so that when they failed, the insiders got lots of money already. In Iceland, the banks "loaned" money to the insiders and owners right before they collapsed. So the question was whether the government of Iceland would give the banks hundreds of millions, or billions of dollars from the citizens of Iceland to keep the banks afloat. But the government decided to let the "too big to fail" banks just go ahead and fail.

The world was outraged. The game being run by Wall Street, by the hedge funds, by the speculators, assumed the governments in each country would bail out the banks rather than let them fail. But Iceland didn't.

The government of Iceland agreed to allow their version of the FDIC to protect the money on deposit in the banks if the money belonged to citizens of their country. It turns out that English people had put a lot of money into the Iceland banks, so the government of England demanded that the people of Iceland pay back that money to the English citizens. But Iceland refused. England then used the anti-terrorism laws passed after 9/11 to seize Iceland's assets and to break the country, to force the people of Iceland to pay back the people of England who had money in Iceland's banks.

That's when the International Monetary Fund (IMF - like the World bank, a front group for the WTO) got involved, and offered to loan money to Iceland, but on condition. The condition is that Iceland has to end its social support programs, and give all their money to the IMF, which will in turn give it to England or the other (speculators) who had money in Iceland's bank. Each citizen of Iceland would be obligated to pay back debts equal to about $300,000 per citizen of that small country. But the average citizen in Iceland had nothing to do with the bank speculators.

The people of Iceland took a vote and decided no, they are not going to bail out those banks. It is a standoff. It is a crime. It is the exact same criminal activity being run by the WTO, the World Bank, Wall Street and the hedge funds everywhere in the world.

First the hedge funds and financial speculators amass trillions of dollars from the richest people in the world, and hide that money offshore so nobody can investigate what they are doing. Then they swoop into a country, set up shell entities to run the con, loan money, run up the value of assets, sell at the top, force the country into bankruptcy. Then they move in again and offer to buy up the debt and take over everything owned by anybody in that country. Just like they stole 40% of the savings and retirement accounts of people in the U.S. which had been in the stock market. They are stealing money, destroying nations. Why aren't they being prosecuted? Because they also bribe the politicians, who get a percentage of what they steal for looking the other way and doing nothing to stop them.


Nicole Gelinas
Global Warning
Iceland’s failed banks offer the West a lesson.
17 September 2009

Nearly a year ago, tiny Iceland’s financial institutions collapsed, just as banks and investment firms did all over the West last autumn. But Iceland differed from the rest of the developed world in forcing its insolvent financial institutions’ bondholders to take their losses. Alone among the world’s nations, Iceland has efficiently taken the principle of “too big to fail,” which governs taxpayer rescues of large or complex financial institutions, to its inevitable end: failure. ..

[In] the 1980s, ... a severe recession soured [Iceland's] citizens on postwar statism and pushed them to embrace the Thatcherite reforms taking hold in Britain. The Nordic country slashed taxes, broke inflation, gradually sold off its banks (completing that process in 2003), and signed an agreement to gain access to European markets. ....

In the decade leading up to the 2008 crisis, Iceland’s banks, along with the rest of the world’s financial economy, became short-lived beneficiaries of the global debt and derivatives bubble. They could attract tens of billions of dollars from global investors partly because Iceland had no public-sector debt, but largely because international banks desired the Icelandic banks’ bonds, folding them into AAA-rated securities and selling them to other international banks. ...

But the fundamental reason for Icelandic banks’ growth—and financial growth around the world—was the universal faith that because finance had grown so complex and interconnected, no Western nation would allow any of its big, complex financial institutions to fail. ....

When, starting in 2007, the world’s lenders lost confidence in the main technique behind all that global debt—securitization—they also lost confidence that financial firms’ assets could hold their values without the easy debt that securitization had provided. As exuberance turned to pessimism, the financial world used unregulated credit derivatives to bet against the Bear Stearns and Lehman Brothers investment banks—and against Iceland’s banks, too. With cheap debt gone and with unregulated financial instruments monetizing and magnifying fear, the banks faced the prospect of selling into a plummeting market, forcing more distressed sales as prices fell....

But in Iceland, ... borrowing costs for the government skyrocketed out of reach. The world started to understand that Iceland’s financial sector was, not too big to fail, but too big to save. So Iceland—out of necessity, not ideology—did what no other Western nation has done: it let two of its three financial giants go under, nationalizing them and forcing losses on bondholders.

As the banks failed, Iceland, too, did what it could to protect its own. It pledged to expand coverage to all domestic deposits under its version of FDIC insurance. But the strategy had a weak spot. One Icelandic bank, Landesbanki, had marketed its “Icesave” accounts over the Internet to British customers, and it had used its own branches to do so, not a separate British company. That meant that Iceland’s deposit insurance applied to the Britons, too, and European regulations forbade Iceland from saving domestic depositors at the expense of equally insured foreign ones. This put Iceland in a fiscally untenable position, since Icesave had amassed foreign deposits worth 70 percent of the country’s GDP.

As Iceland dithered over whether it could make good on a liability that would take its debt from zero to levels that would have been considered high at the time even in the rest of the indebted West, British depositors panicked, and so did the British government, which feared that the public wouldn’t differentiate between Britain’s banks and Icesave. To maintain confidence in its banks, Britain offered Icesave account holders its own government protection. Then, using powers granted under antiterrorism law, the government seized the British assets of Landesbanki, by now Iceland’s last remaining big bank. The bank then collapsed back home, bringing 95 percent of Iceland’s financial system into bankruptcy and under state control. “Most ordinary Icelandic citizens felt as if they had been expelled from Europe,” Jonsson writes, with Icelanders abroad cut off from international credit-card and ATM systems.

So that its citizens and businesses could import necessities as its currency cratered, Iceland went to the International Monetary Fund, borrowing money on terms that included budget cuts and a promise to repay the British and the Dutch (whose government had also stepped in to protect its Icesave customers). In addition to the $2 billion IMF loan (with more likely to follow), Iceland now owes $5 billion because of Landesbanki’s Icesave obligations—roughly one foreign Icesave account for every Icelandic citizen.

What’s next for Iceland—its economy sunk, its self-esteem ruined, its government slashing spending, and its citizens angry at becoming “Iceslaves” to reimburse foreign depositors? ... But Iceland can’t avoid cutting public spending as it weans itself from unsustainable financial services’ illusory wealth.....

Nicole Gelinas, a City Journal contributing editor, is author of the forthcoming After the Fall: Saving Capitalism from Wall Street—and Washington.


The IMF Collects Debts on Behalf of the World's Largest Banks
Make Iceland pay for Incompetent British Bank Deregulation

by Michael Hudson

Global Research, May 11, 2009

Last month the G-20 authorized the International Monetary Fund to increase its loan resources to $1 trillion. It’s not hard to see why. Weakening currencies in the post-Soviet states threaten to raise default rates on foreign-currency mortgages as collapse of the Baltic real estate bubble drags down Swedish banks, while the Hungarian property plunge threatens Austrian banks. It seems reasonable to infer that creditor-nation banks hope to be bailed out. The IMF is expected to lend the Baltic, central European and other debtor-country governments money to pay them. These hapless debtor economies are then to follow IMF “conditionalities” to squeeze enough money out of their populations to pay foreign creditors – and repay the Fund by imposing yet more onerous taxes on their labor and industry, making them even more high-cost and therefore pushing them even further into trade and credit dependency. This is why there have been so many riots recently in Latvia, Lithuania, Estonia and Ukraine, as was the case for so many decades throughout the Latin American countries that introduced the term “IMF riot” to the global vocabulary.

For fifty years the IMF has organized such payouts to creditor nations. Loans are made to debtor-country governments to “promote exchange-rate and price stability.” In practice this means pouring tens of billions of dollars into currency markets to make bad gambles against raiders. This is supposed to avert the beggar-my-neighbor nationalism and financial protectionism that aggravated depression in the 1930s. But the practical effect of IMF lending is to demand that debtor countries impose onerous IMF “conditionalities” that stifle their domestic markets. This is why the IMF was left with almost no customers until last year’s debt crisis deranged the world’s foreign exchange markets.

It is supposed to be merely incidental that the largest IMF shareholders, the United States and Britain, happen to be the major creditor nations and their banks the main beneficiaries of IMF loans. ...

Here’s the background. Mr. Brown and his New Labour predecessor Tony Blair have saddled British taxpayers with a generation of payments to pay for their decade of deregulating London’s financial sector. ...

Last autumn one of Iceland’s most reckless banks, Landsbanki, announced that it had made so many bad gambles that its loans and investments could not cover what it owed its depositors. It had drawn many deposits from abroad by setting up foreign branches, including Icesave in Britain.

When Icesave went broke in October, British monetary authorities panicked. Mr. Brown sought above all to prevent its owner, Landsbanki, from doing what Lehman Brothers had just done on Sept. 14 when its New York office emptied out the funds in the account of its London affiliate just before the U.S. firm declared bankruptcy. Trying to grab whatever Icelandic assets he could, Mr. Brown overreacted (hardly a new experience for him). Responding far beyond Icesave itself, he resorted to anti-terrorist legislation passed in 2001 in the wake of the 9/11 attack on New York’s World Trade Center to freeze Icesave’s accounts – and also those of other banks in Britain owned by Iceland. ...

[T]he collapse of Iceland’s economy has sent unemployment soaring and business crashing, so real estate prices have fallen by about 25%. ...

What the IMF did demand – as it always does – is that once the government bails out the bankers for their bad loans, the whole privatization process is to start all over again, paving the groundwork for yet new rip-offs. In view of the fact that “the banking crisis will significantly constrain the public sector and burden the public for years to come” as the government pays off bad loans (#12), the agreement pledges (#14) that “A significant reduction in government debt through the sale of the government’s stake in the new banks could help reduce the needed fiscal adjustment over the medium term.”

Mr. Brown’s statement that he intends to use IMF leverage to deepen Iceland’s debt position by forcing its government to bail out British depositors has rubbed salt in this wound – precisely by demanding for his country what Icelanders are not receiving from their government!


Frozen Assets
Wall Street on the Tundra

by Michael Lewis
April 2009

Just after October 6, 2008, when Iceland effectively went bust, I spoke to a man at the International Monetary Fund who had been flown in to Reykjavík to determine if money might responsibly be lent to such a spectacularly bankrupt nation. .... “You have to understand,” he told me, “Iceland is no longer a country. It is a hedge fund.”

.... In 2003, Iceland’s three biggest banks had assets of only a few billion dollars, about 100 percent of its gross domestic product. Over the next three and a half years they grew to over $140 billion and were so much greater than Iceland’s G.D.P. that it made no sense to calculate the percentage of it they accounted for. It was, as one economist put it to me, “the most rapid expansion of a banking system in the history of mankind.”

At the same time, in part because the banks were also lending Icelanders money to buy stocks and real estate, the value of Icelandic stocks and real estate went through the roof. From 2003 to 2007, while the U.S. stock market was doubling, the Icelandic stock market multiplied by nine times. Reykjavík real-estate prices tripled. By 2006 the average Icelandic family was three times as wealthy as it had been in 2003, and virtually all of this new wealth was one way or another tied to the new investment-banking industry. ....

Global financial ambition turned out to have a downside. When their three brand-new global-size banks collapsed, last October, Iceland’s 300,000 citizens found that they bore some kind of responsibility for $100 billion of banking losses—which works out to roughly $330,000 for every Icelandic man, woman, and child. On top of that they had tens of billions of dollars in personal losses from their own bizarre private foreign-currency speculations, and even more from the 85 percent collapse in the Icelandic stock market. ....

Bear Stearns convened a meeting of British and American hedge-fund managers here, in January 2008, to figure out how much money there was to be made betting on Iceland’s collapse. (A lot.) The hotel, once jammed, is now empty, with only 6 of its 38 rooms occupied. The restaurant is empty, too,....

[People have taken their money out of banks, traded it in for foreign currency because Iceland's currency has collapsed, and now keep their money at home].

Before October the big-name bankers were heroes; now they are abroad, or laying low. ...

It must have seemed like a no-brainer: buy these ever more valuable houses and cars with money you are, in effect, paid to borrow. But, in October, after the krona collapsed, the yen and Swiss francs they must repay are many times more expensive. Now many Icelanders—especially young Icelanders—own $500,000 houses with $1.5 million mortgages, and $35,000 Range Rovers with $100,000 in loans against them. To the Range Rover problem there are two immediate solutions. One is to put it on a boat, ship it to Europe, and try to sell it for a currency that still has value. The other is set it on fire and collect the insurance: Boom! ....

The world is now pocked with cities that feel as if they are perched on top of bombs. The bombs have yet to explode, but the fuses have been lit, and there’s nothing anyone can do to extinguish them. Walk around Manhattan and you see empty stores, empty streets, and, even when it’s raining, empty taxis: people have fled before the bomb explodes. When I was there Reykjavík had the same feel of incipient doom, but the fuse burned strangely. The government mandates three months’ severance pay, and so the many laid-off bankers were paid until early February, when the government promptly fell. Against a basket of foreign currencies the krona is worth less than a third of its boom-time value. As Iceland imports everything but heat and fish, the price of just about everything is, in mid-December, about to skyrocket. A new friend who works for the government tells me that she went into a store to buy a lamp. The clerk told her he had sold the last of the lamps she was after, but offered to order it for her, from Sweden—at nearly three times the old price.

David Oddsson [was] 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. At length, weary of prime-ministering, he got himself appointed governor of the Central Bank—even though he was a poet without banking experience.

After the collapse he holed up in his office inside the bank, declining all requests for interviews. ....

When, in 2003, [Iceland] sat down at the same table with Goldman Sachs and Morgan Stanley, they had only the roughest idea of what an investment banker did and how he behaved—most of it gleaned from young Icelanders’ experiences at various American business schools. And so what they did with money probably says as much about the American soul, circa 2003, as it does about Icelanders.¤tPage=all

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