A question for IB’R or any of you other smart bankers: what happened to Iceland?

I’m not being facetious here, I’m genuinely curious. A few months ago, Iceland’s citizens rejected a plan that would have required them to bail out their banks at onerous terms and that was supposed to have produced terrible results. But I can’t seem to find any news on what, if anything happened. Did it? Will it? If not, then maybe Ireland and some of the other pigs might want to emulate Iceland, but I really don’t know what happened. Do you? Just asking, Curious in Riverside.

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22 responses to “A question for IB’R or any of you other smart bankers: what happened to Iceland?

  1. Shoeless

    Iceland told the internatinal banks to pound sand and essentially defaulted on their debt. While the initial hit to GDP was substantial, since the credit markets were essentially closed to Iceland, they emerged from banruptcy unencumbered by the enourmous debt burden and are now humming along rather nicely. It was helpful that they had their own currency, as its devaluation helped to promote exports, which helped limit the overall decline of the economy.

    Ireland, Greece an the others are all tied to the euro, so devaluation within the euro bloc is not an option (for now). 11 million Grecians owe approximately $650bln. There is no option but default, but the banks in Europe would all be rendered insolvent by this action, so we see continued efforts to kick the can. Bottom line is that’s debt’s that can’t be paid back won’t be paid back. Simple as that.

  2. boredatwork

    Iceland did what Ireland should have done. They allowed their banks to fail and said they’d deal with the consequences. They protected the banks’ depositors (i.e., Iceland’s citizens), while foreign creditors got hosed. After a couple of years, Iceland recently accessed the world’s financing markets again, and the world is OK again. Ireland should have done that because they were basically a solvent nation with an insolvent banking system.Now the nation is borderline insolvent because they bailed out their banking system.

  3. DebtVulture

    Iceland said screw you a couple years ago and defaulted. They are issuing debt once again and their economy is starting to grow. If I was Greece, I would say screw you too right now.

  4. Just The Facts!

    Euro lenders blinked and bailed them out. Just like they will do in Greece, Ireland, Spain and beyond. The EU will not risk implosion. So watch more bankers bending at the knees and restructuring their debt. Too bad they are finally doing their homework and credit analysis after the fact. The hubris of Europeans never ceases to amaze me.

  5. Check out this link about how Iceland broke the “rules” and came out the better for it. http://www.guardian.co.uk/commentisfree/2011/apr/12/iceland-ireland-portugal-markets

  6. Mr EOS

    WSJ had a great article July 9th entitled “Iceland is Back.” Can’t link to it; am typing on Blackberry

  7. Anonymous

    Still home to some of the most beautiful women on the planet.
    Also, they had some problems with their banks.

  8. Retired IB'er

    Iceland, as others have pointed out, took its medicine and wrote off bad debts. This is the exact opposite of what the US and the EU has done. Look at Greece as a case in point. The EU has done everything in their power (and will be unsuccessful) to avoid writing down Greek debt. The result is that the Greek economy is mired in a mess.

    Iceland took the opposite approach and according to the OECD is already growing its economy again.

    Bottom line: The US/EU is trying to save investors and Iceland tried to save its economy.

    “A report from the Organisation for Economic Co-operation and Development says Iceland has largely recovered from its deep slump in the wake of the global financial crisis.”

    http://www.rte.ie/news/2011/0621/iceland-business.html

  9. fred 3

    Thanks IB’er. Are we witnessing a BIS/G20 initiative to save the (private) central banking system?

  10. Inagua

    Very well put, IRB:

    “Bottom line: The US/EU is trying to save investors and Iceland tried to save its economy.”

  11. Toke

    They cut the banks loose and waved bye-bye to Europe. We are of course talking about a country of 318k souls who could have worked forever and never got out from under the burden. Result was a sharp devaluation of the krona, initially steep rise in unemployment which subsequently subsided, together with an uptick in exports. Now their jobless rate is lower than Germany’s and half that of Ireland and Portugal and a third of Spain’s. Inflation rates still a bit higher than others in Europe (devaluation) but the so-called misery rate (jobless plus inflation) is actually not much worse than Germany and whole lot better than the PIIGS. Iceland could do this because they aren’t (like the PIIGS) card carrying members of the Euro. Going back to the Drachma is almost certainly the right theoretical policy choice for the Greeks but locally opposed because they would rather be bailed out and politically opposed by others for fear that the Euro would unravel.

  12. Cos Cobber

    Ibr, isnt also worth noting that the Iceland default mostly hurt overseas retail bank depositors rather than sovereign bond holders. The big distinction being that it was Iceland’s banks that failed depositors rather than Iceland’s government failing Iceland sovereign debt holders.

    Iceland having its own currency certainly has helped. I think the Icelandic people were right to vote against the bailouts having a very small economy with less than 400,000 people.

  13. Hey

    Iceland also got bailed out by the rest of the Scandis – good ol ethnic solidarity. They’re telling the Brits to f-off (that brings back memories of getting screwed by Vikings for the Brits too).

    400K people with good resource economy and, in the greater scheme of things, a small financial sector is one thing. Bailing out a large economy ith a globally relevant financial sector that is deep in primary deficit is a whole nother kettle of fish.

    The remaining dominoes are more Credit Anstalts. Go short Parisian real estate!

  14. Retired IB'er

    Cos Cobber,

    You are correct that it was “easier” for Iceland given much of the debt was owed outside the country (the UK being a big bag holder). Still, the nation, through its actions, was shut out from the credit markets: and wasn’t “costless”.

    The US when faced with a similar situation with Fannie/Freddie (a good chunk of which was held by China) blinked thanks to Hank Paulson and George Bush. We stuck the losses to the taxpayers and not the bondholders. Obama has just continued the misguided policy of privatizing profits and socializing losses.

    IMHO, the only reason the EU is still pushing for no haircut on Greek debt is because France and German banks are/were major holders and they are deathly afraid of contagion. As an aside, if Italy goes, French banks are on the hook for 1.5 trillion Euros, which means bye-bye banking system. I’m fairly confident if the majority of PIIGS debt was held outside of the EU the Europeans would have told investors to pound sand (unlike what the US did).

  15. Retired IB'er

    Fred 3,

    Yes: and has been the case since Lehman triggered the crisis in 2008.

  16. anon

    iceland has lots of beautiful women? that’s like saying there are a lot of beautiful women in appalachia . inbreeding makes ‘em good.

  17. networthdeclining

    While Iceland is a small independant economy with good exports (fish), and therefore a bit unique, the lesson of taking your pain quickly and moving on as quickly as possible is interesting. The step Bush and Obama have taken have extended the pain and dampened the recovery. NOte: iceland may have stumbled into the solution, becuase ther political discourse is just a fractious as everyone else’s

  18. Cos Cobber

    Yes, IBR, but isnt the distinction also noteworthy that its Iceland’s banks that failed and not its government debt as their banks gobbled up deposits from northern european retail customers and lost the deposits on poor lending decisions?

    I would think what happened in Iceland should give pause to anyone banking in a carribean islands, or any small nation, no? The risk being that when banking/investing is administered by a foreign nation, the smaller the nation, the less likely you are to have a rigorous banking system, legal recourse and most of all, local financial means to save itself for small or major hiccups and/or outright fraud.

  19. Donato Loscalzo

    Dear Chris………they have done very, very well…….GDP has been up +11% 09 and 10, going back to they know best: fishing. No joke. No bailouts for banksters and special interest groups. Thank you very much.