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Old 01-29-2013, 06:05 AM   #1
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Iceland's 'Icesave' Deposit Victory Slams Door On European Deposit Insurance Hope

In yet another victory for not bowing to the great-and-good of modern orthodoxy, Iceland has won a court ruling that enables it to repay billions of Euros (in failed bank deposits to the UK and Holland) on its own terms. Icesave collapsed in 2008 and left thousands of depositors, who had chased higher yielding deposits, with losses. The Dutch and British governments demanded prompt payment; Iceland denied, preferring (rationally) to repay what they could from the then-bankrupt entity. As RTE notes, Icelanders in referenda twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done, instead of the taxpayers of Iceland being force per se to fund this shortfall. The implication being: Bank deposit insurance schemes in the European Economic Area are NOT backed by government liability, neither explicitly nor implicitly - which could well reignite concerns of the much-hoped-for Europe-wide deposit-guarantees.

Via RTE,

Iceland has won a court ruling allowing it to repay billions of euros on its own terms to Britain and the Netherlands for bailing out depositors in a failed Icelandic bank.

Iceland has said it will fully repay both countries, but through a gradual process as it runs down the assets of failed bank Landsbanki.

It collapsed in 2008 leaving depositors of its Icesave online accounts stranded.

Britain and the Netherlands stepped in to repay savers, but it sparked a political row and the two countries sought court backing to say Iceland had failed to repay the money within time limits set by a European directive for deposit guarantee schemes.

A European court has now dismissed the case.

Officials on the small north Atlantic island expressed relief over the ruling.

“Icesave is now no longer a stumbling block to Iceland's economic recovery," Iceland's Foreign Ministry said.

All of Iceland's banks collapsed four years ago, early in the financial crisis, and the UK and Dutch governments wanted Iceland to pay them back directly and quickly.

Iceland did not comply, triggering a row between the governments and potentially complicating the island's bid to join the European Union.

The court of the European Free Trade Association said Iceland did not break depositor protection laws by refusing to return the money, because the scale of its financial crisis was so big.

"The verdict is, of course, a fantastic and total victory for us," said Icelandic Industries Minister Steingrimur Sigfusson, who was finance minister during the dispute.

"It's good to have this whole unpleasant business out of the way," he said in comments on public broadcaster RUV.

Iceland's economy sank and the government had to take a bailout from the International Monetary Fund and Nordic countries after the 2008 crisis.

The row with the British and Dutch over the Icesave accounts added to bitterness in the aftermath of the crisis, when Iceland was especially angered at Britain's use of anti-terrorism legislation to freeze Landbanki assets.

Britain had no immediate reaction to the verdict. The Dutch Finance Ministry said in a statement that it "regrets the judgment and will study the consequences of the judgment".

The European Commission had also pressed the case against Iceland and said it was also studying the consequences.

Icelanders in referendums twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done.

The court of EFTA, a cooperation group of which Iceland is a member and which has links to the European Union, rejected all three claims brought by the EFTA Surveillance Authority - the body which oversees the bloc's rules.

In its ruling, the court said the deposit guarantee directive in place in 2008 did not envisage the obligation to repay savers in Britain and the Netherlands "in a systemic crisis of the magnitude experienced in Iceland".

The Icelandic Foreign Ministry said 585 billion Icelandic crowns of the 1,166 crowns of claims from Icesave had been repaid from the failed Landsbanki estate, representing more than 90% of the minimum deposit guarantee covering the savers.

"It is expected that the Icesave claims will be paid out in full by the actual debtor, the estate of the failed Landsbanki," the Foreign Ministry said.

http://www.zerohedge.com/news/2013-0...nsurance-hopes
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Old 01-29-2013, 06:34 AM   #2
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Icesave collapsed in 2008 and left thousands of depositors, who had chased higher yielding deposits, with losses.
So, these people have no responsibility to repay these bets? I want in on this system where if you win the bet, you get the money, if you lose the bet, someone else is supposed to pay for me.
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Old 01-29-2013, 06:53 AM   #3
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So, these people have no responsibility to repay these bets? I want in on this system where if you win the bet, you get the money, if you lose the bet, someone else is supposed to pay for me.
Your in on a better system, where someone else bets you and your kids money, loses, and you and your kids pay the tab. Why would you want out of that?

Iceland has said it will fully repay both countries, but through a gradual process as it runs down the assets of failed bank Landsbanki.

I don't see the problem..

What actually happened is, the folks who created the scam, pay for the scam. The taxpayers said "Nah, you fuckers can cover your own losses". Used to be called capitalism, but now you and others like you think it stinks for bad bets to be covered by the makers.
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Old 01-29-2013, 07:00 AM   #4
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I don't see the problem..
The problem is that at some point, Iceland or Icelandbank signed a contract that spelled out the terms of repayment. How will society look when everyone who signs a contract with terms of repayment decides to just pay when they feel like it. Maybe your company can pay out your retirement at a lower rate and you can collect until you are 120. What do you think is going to happen to Iceland's ability to borrow money? Do you want to make someone a loan who decides on their own how much and when they will pay you back? Not me.
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Old 01-29-2013, 07:23 AM   #5
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The problem is that at some point, Iceland or Icelandbank signed a contract that spelled out the terms of repayment. How will society look when everyone who signs a contract with terms of repayment decides to just pay when they feel like it.
Criminals do criminal shit. Icelanders just decided to let the criminals pay for the crime.. novel idea huh?

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Maybe your company can pay out your retirement at a lower rate and you can collect until you are 120. What do you think is going to happen to Iceland's ability to borrow money? Do you want to make someone a loan who decides on their own how much and when they will pay you back? Not me.
Well, they are experiencing a recovery while the west is experiencing slow, defined, collapse.

"… Why are the banks considered to be the holy churches of the modern economy? Why are private banks not like airlines and tele-communication companies and allowed to go bankrupt if they have been run in an irresponsible way? The theory that you have to bail-out banks is a theory that you allow bankers enjoy for their own profit their success, and then let ordinary people bear their failure through taxes and austerity. 
People in enlightened democracies are not going to accept that in the long run. …“ - Iceland’s President Olafur Ragnar GRIMMSON

Good thing there isn't any chance of "enlightened" happening here..
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Old 01-29-2013, 07:25 AM   #6
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Fighting Recession the Icelandic Way

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression.

Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

You can say that again. Iceland’s approach was the polar opposite of the U.S. and Europe, which rescued their banks and did little to aid indebted homeowners. Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.

Nothing distinguishes Iceland as much as its aid to consumers. To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.
Debt Relief

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.

These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

In addition to easing consumer debt, Iceland reduced government spending and increased revenue by raising taxes and cutting deductions that mainly benefited the well-off, a path the U.S. might profitably emulate. In fact, relief for overburdened U.S. consumers is a cause promoted by former U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair in a new book published this week. Bair would have done more to aid sinking homeowners and done less for banks, but she says her efforts were blocked by Treasury Secretary Timothy Geithner and others.

It worked in Iceland. A deficit that reached 13.5 percent of gross domestic product in 2009 fell to 2.3 percent last year. The IMF predicts Iceland will have a primary surplus (excluding interest on debt) of 1.5 percent this year.

As for the banking industry, Iceland never had an option to adopt the too-big-to-fail policy that led governments in the U.S. and Europe to prop up their banks. Assets held by Iceland’s three largest lenders had swelled to nine times the size of the economy. After they defaulted on $85 billion in debt, the government seized control of them.

Initial plans to repay foreign creditors, mostly U.K. and Dutch depositors, collapsed in 2009 as street protests led to the demise of the government. Repayment of obligations to overseas creditors was either postponed or written off, leaving the reconstituted banks with much smaller domestic operations. Twice, Icelanders rejected national referendums on repaying foreign depositors, who are pressing their claims in European courts.
Holding Accountable

A new government led by Johanna Sigurdardottir embarked on a campaign to hold accountable the so-called neo-Viking bankers at the center of Iceland’s crisis. Instead of picking a prosecutor from law firms in Reykjavik, which had depended on the banks for business, the government drafted an investigator from a remote village. Although a number of bankers fled the country to avoid prosecution, the former chiefs of two of the three biggest banks have been indicted and are standing trial.

Undoing the damage caused by the crisis is a work in progress; not every Icelandic innovation would be feasible in the U.S. or Europe. Iceland’s debt stands at almost 100 percent of GDP. Many of the country’s professionals have left for Norway and Denmark amid a dearth of jobs. Iceland still must figure out how to ease constraints that barred investors from withdrawing as much as $8 billion from the country and transferring it overseas. Inflation remains stubbornly high. To counter that, and to prevent capital flight, Iceland’s central bank has increased interest rates five times in the past year. But raising interest rates makes credit more expensive, checking growth.

Iceland’s central bank on Sept. 18 released a report suggesting the country go slow with plans to enter the European Union, a process started in 2010 when the euro seemed sounder than the krona. Becoming a member won’t be easy: If the issue were put to a referendum, Icelanders would probably reject admission. And why would Iceland want to join now? Euro-member nations such as Greece and Ireland offer testimony to the risks of being yoked to a currency along with stronger economies.

Devaluation of the kind Iceland suffered is never fun. Reneging on debts leaves a legacy of violated trust. But it still looks better than recession with no obvious way out.

http://www.bloomberg.com/news/2012-0...-correct-.html
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Old 01-29-2013, 08:17 AM   #7
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Although lessons drawn from Iceland, with just 320,000 people and an economy based on fishing, aluminum production and tourism, might not be readily transferable to bigger countries, its rebound suggests there’s more than one way to recover from a financial meltdown.

l
Bingo. All of this means absolutely nothing to large economies. Iceland has about half the population of Ft. Worth, TX. They can get away with lots of things that would destroy a mega economy like ours. I'm not defending banks. I'm just saying that there are generally consequences for failing to pay back loans as agreed. At the very least, you get a downgraded credit rating, pay more interest in the future, and have more trouble borrowing in the future. And banks aren't just buildings or banksters. They have investors - many of them pension plans, etc, and if the banks get stiffed, so do the investors. There is no way to do what Iceland did without some innocent investors losing out.
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Old 01-29-2013, 08:21 AM   #8
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Bingo. All of this means absolutely nothing to large economies. Iceland has about half the population of Ft. Worth, TX. They can get away with lots of things that would destroy a mega economy like ours. I'm not defending banks. I'm just saying that there are generally consequences for failing to pay back loans as agreed. At the very least, you get a downgraded credit rating, pay more interest in the future, and have more trouble borrowing in the future. And banks aren't just buildings or banksters. They have investors - many of them pension plans, etc, and if the banks get stiffed, so do the investors. There is no way to do what Iceland did without some innocent investors losing out.
Right now, innocent taxpayers are covering gambling losses. Right now, growth is gone and cannot come back without a sterilization of the markets, Right now, there is no recovery and will not be a recovery until there is either a total collapse or a reversal of the horrific policy decisions of 2008.

I guess capitalism really is dead..
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Old 01-29-2013, 08:52 AM   #9
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Right now, innocent taxpayers are covering gambling losses.
Exactly my point. Why shouldn't the people who originally borrowed money be covering these losses? We do agree on this point. Taxpayers should not be the ones footing the bill for people who overextended themselves. If a borrower absolutely cannot pay their debt now or in the future, that's what bankruptcy is for, and lenders calculate those kinds of losses into their interest rates. They expect to lose a certain percentage of their loans. But for borrowers to unilaterally declare new terms to their loan is ridiculous. If everyone did that, our financial system would fall apart. Fortunately, Iceland is a minnow in a large ocean, so they don't have that much impact.
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Old 01-29-2013, 12:47 PM   #10
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Exactly my point. Why shouldn't the people who originally borrowed money be covering these losses? We do agree on this point. Taxpayers should not be the ones footing the bill for people who overextended themselves.
If a borrower absolutely cannot pay their debt now or in the future, that's what bankruptcy is for, and lenders calculate those kinds of losses into their interest rates. They expect to lose a certain percentage of their loans. But for borrowers to unilaterally declare new terms to their loan is ridiculous. If everyone did that, our financial system would fall apart. Fortunately, Iceland is a minnow in a large ocean, so they don't have that much impact.
I got news for you, the financial system did fall apart.

The bigs made bets they couldn't cover once the losses started. That is not my problem.. let them fail, put them in jail, just NO BAILout.
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