What Iceland's experience Teaches : “Let crooked Banks Fail”...
Agence France-Presse notes:
Three years after Iceland’s banks collapsed and the country teetered on the brink, its economy is recovering, proof that governments should let failing lenders go bust and protect taxpayers, analysts say.
“The lesson that could be learned from Iceland’s way of handling its crisis is that it is important to shield taxpayers and government finances from bearing the cost of a financial crisis to the extent possible,” Islandsbanki analyst Jon Bjarki Bentsson told AFP.
“Even if our way of dealing with the crisis was not by choice but due to the inability of the government to support the banks back in 2008 due to their size relative to the economy, this has turned out relatively well for us,” Bentsson said.
Nobel Prize-winning US economist Paul Krugman echoed Bentsson.
“Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net,” he wrote in a recent commentary in the New York Times.
“Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver,” he said.
During a visit to Reykjavik last week, Krugman also said Iceland has the krona to thank for its recovery, warning against the notion that adopting the euro can protect against economic imbalances.
Iceland’s former prime minister Geir Haarde, in power during the 2008 meltdown and currently facing trial over his handling of the crisis, has insisted his government did the right thing early on by letting the banks fail and making creditors carry the losses.
“We saved the country from going bankrupt,” Haarde, 68, told AFP in an interview in July.
Iceland told the banks to pound sand. And Iceland’s economy is doing much better than virtually all of the countries which have let the banks push them around.
Barry Ritholtz noted in May:
Rather than bailout the banks — Iceland could not have done so even if they wanted to — they guaranteed deposits (the way our FDIC does), and let the normal capitalistic process of failure run its course.
They are now much much better for it than the countries like the US and Ireland who did not.
Bloomberg pointed out in February:
Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.
“Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks,” says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.”
Ireland guaranteed all the liabilities of its banks when they ran into trouble and has been injecting capital — 46 billion euros ($64 billion) so far — to prop them up. That brought the country to the brink of ruin, forcing it to accept a rescue package from the European Union in December.
Countries with larger banking systems can follow Iceland’s example, says Adriaan van der Knaap, a managing director at UBS AG.
“It wouldn’t upset the financial system,” says Van der Knaap, who has advised Iceland’s bank resolution committees.
Arni Pall Arnason, 44, Iceland’s minister of economic affairs, says the decision to make debt holders share the pain saved the country’s future.
“If we’d guaranteed all the banks’ liabilities, we’d be in the same situation as Ireland,” says Arnason, whose Social Democratic Alliance was a junior coalition partner in the Haarde government.
“In the beginning, banks and other financial institutions in Europe were telling us, ‘Never again will we lend to you,’” Einarsdottir says. “Then it was 10 years, then 5. Now they say they might soon be ready to lend again.”
Even the IMF praises Iceland’s strategy:
As the first country to experience the full force of the global economic crisis, Iceland is now held up as an example by some of how to overcome deep economic dislocation without undoing the social fabric.
While the conditions in Iceland are in many ways different from the conditions in the U.S., Iceland’s lesson applies to America, as well.
Specifically, a study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent hurts the economy:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodating policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.
All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.
Indeed, numerous Nobel prize winning and otherwise highly-regarded American economists say that our economy cannot recover until the big banks are broken up.
If the politicians are too corrupt to break up the big banks (because the banks have literally bought the politicians), let’s break them up ourselves.
Yes, The Big Banks DO Care If We Move Our Money....
650,000 customers moved $4.5 billion dollars out of the big banks and into smaller banks and credit unions in the last month.
But there is a myth making the rounds that the big banks don’t really care if we move our money. For example, one line of reasoning is that no matter how many people move their money, the Fed and Treasury will just bail out the giants again.
But many anecdotes show that the too big to fails do, in fact, care.
Initially, of course, if the big banks really didn’t care, they wouldn’t have prevented protesters from closing their accounts.
NBC notes that – in response to inquiries regarding how many people have moved their money – Bank of America refused to provide figures, and instead sent the following defensive email:
“Bank of America continues to be a great place for customers to manage their everyday finances and achieve their savings goals,” [Colleen Haggerty, a spokeswoman for Bank of America's Southern California operations] said in an email. “We offer customers more choice and convenience, including industry-leading fraud protection, access to thousands of banking centers and ATMs, and the best online and mobile banking, which allow customers to bank on their terms 24/7.”
A writer noted at Daily Kos:
At Wells Fargo, my sister walked up to the teller and politely asked to close her account. The teller said, “No problem.” She pulled up her account and saw the balance and told her that due to the amount she had to speak with the branch manager. The branch manager came out. He was probably 30 years old and was very arrogant. He asked my sister why she wanted to close her account and my sister told him she thought Wells Fargo was part of the problem with the economy. He went thru some talking points about why she shouldn’t move her money, but my sister didn’t back down. When he asked her where she was going she told him that she would be banking at the North Carolina State Employees Credit Union. She isn’t a state employee, but anyone can join if you are related to a state employee. It turns out her husband is. Anyway, the bankster told her “You’ll be back. Credit unions can’t provide the services you need.” We’ll see about that. She withdrew over $200k from Wells Fargo.
Next we went to Bank of America. I closed my last account with hardly any questions asked. Of course, I had taken most of my money out so there wasn’t much left to take. My sister on the other hand had a large balance in multiple accounts. They actually refused to cut her a check for the full amounts. They only gave her 1/3 of her money and told her she’d have to come back to withdraw the rest. They claimed they were only allowed to make checks for a certain amount, and that they had no authority to cut additional checks on the same day. Stupid BofA. She had her check in hand and politely told off the branch manager when he told her she had to come back another day or two to withdraw the rest.
At BofA, we weren’t the only ones closing accounts. There was a line of people. Most had small accounts because they weren’t even being challenged, but she actually had to wait in line to speak with a branch manager.
At SunTrust, the branch manager went off his rocker. He just kept asking her “is there anything I can do or anything I can say to change your mind?” He asked probably twenty times. He even offered to have the market executive meet with her and hear out her concerns. She told him she wasn’t interested. He really looked nervous about it.
And a writer at Daily Bail pointed out:
I went in, asked to speak with a banker and was seated in an office. When the young associate came in and asked the purpose of my visit, I handed her my ATM card and requested that she tell me the balance. When she did, I then asked for a cashiers check in that amount. That’s when things got wonky. She froze, stumbled over her words and asked why I needed that amount (It was not a small sum). This gave me an opportunity to explain that although I personally would not be affected by their new fees I know plenty of friends and family that would feel the pain. In solidarity with them, I wished to close the account and move on. She unwittingly suggested that if I just use my debit card once a month then there would be no fee. That was good for a belly laugh from me, then I again requested the balance to be issued to me in the form of a cashier’s check. She then told me that there would be a $10 fee for this service. Another laugh. I guess it didn’t sink in when I told her that I was fee adverse. There was an easy work-around anyway – I requested the cash. That finished my time with this associate banker as the amount I was requesting was “well past” her daily limit for withdrawals. I asked if there would be an issue with securing the cash and she said “I honestly don’t know if we have that here” and walked out to get the branch manager.
The manager was pleasant enough and very direct. After introducing herself she flat out asked “What can we do to change your mind?” “We don’t want to see you go” she emphasized. This opened a door for me to further explain my decision to leave the bank and why I was doing it. Amazingly, it did not fall on deaf ears. She indicated that understood where I was coming from and actually showed genuine surprise at some of the facts I provided her about the less than consumer friendly policies and machinations of her employer. She did make some feeble counter-arguments and repeatedly asked me if I would change my mind (with a hint of desperation!). I stood firm and by the end of our conversation she asked if I would be willing to put it all in writing so she could send it up the chain.
She shared that management is nervous, they are seeing money leaking out of the bank and realize that they have made mistakes…. They are also aware of the growing momentum behind the November 5th move your money movement.
Management is aware that people are angry (how could they not be!) and have put an ear to the ground.
Hundreds of similar stories are being told all over America.
Even though the government may keep throwing money at the dinosaurs, the Basel regulations do have some capital requirements, and so the big banks need to bring in some actual deposits to fund their casino gambling.
Moreover, if too many depositors leave, the illusion that the big banks are serving the American public will be burst, and a critical mass of consciousness will occur, so that the banks’ questioned control over the American political and financial systems will start to be questioned.
So moving our money is an effective step towards reclaiming America and the World...
Veterans Know that War Is Great for the 1% … But Horrible for Them and the Rest of the 99%
I have extensively documented that – contrary to a common myth – war is horrible for our economy. Specifically, war is great for the 1%, but makes the rest of the country poorer.
Veterans from every branch of the military – and across 3 generations – are coming out to support the “occupy” protests. But they are not just outsiders supporting the protesters … they are part of the 99%.
As AP notes today, the veterans fighting the imperial wars for the 1% are part of the 99% who are hurt by the never-ending-war-for-profit-model:
U.S. military veterans … [say] corporate contractors in Iraq made big money while the troops defending them came home – and can’t make a living now.
“For too long, our voices have been silenced, suppressed and ignored in favor of the voices of Wall Street and the banks and the corporations,” said Joseph Carter, a 27-year-old Iraq war veteran who marched Wednesday to Zuccotti Park, the epicenter of the movement that has spread worldwide.
***Their unemployment rate outstrips the national average and is expected to worsen. They worry about preservation of First Amendment rights. And they’re angry.
“For 10 years, we have been fighting wars that have enriched the wealthiest 1 percent, decimated our economy and left our nation with a generation of traumatized and wounded veterans that will require care for years to come,” said Carter, who leads the national Iraq Veterans Against the War group.
In New York on Wednesday, police circled the veterans as they stood in formation in front of the New York Stock Exchange, chanting, “We are veterans! We are the 99 percent!” and “Corporate profits on the rise, soldiers have to bleed and die!”
“I swore to defend their freedoms, and they were being taken away. It’s very unconstitutional,” said McBride, who said he was less than honorably discharged for medical reasons.
McBride said the Occupy Wall Street protest is exactly the kind of civil disobedience protected under U.S. law.
“They wanted to kick us out. This is a peaceful assembly,” he said Thursday. “In the Constitution, the people have the right to peacefully assemble. It’s plain and simple. That’s why I’m here, to defend the Constitution of the United States.”
Back in New York, Bordeleau blamed some financial institutions for U.S. involvement in Iraq and Afghanistan.
“Wall Street corporations have played a big role in the wars in Iraq and Afghanistan,” said Bordeleau ….
He said private contractors have reaped big profits in those countries “in pursuit of corporate interests that have had a devastating effect on our economy and our country, benefiting only a small number of people.”
“The 99 percent have to take a stand,” Bordeleau said, to rectify the biggest income gap between rich and poor since the Great Depression, fueled by what protesters say is Wall Street’s overblown clout in Washington politics.
“Halliburton and Bechtel think these wars are swell,” they chanted, invoking the names of American companies that received federal contracts for work rebuilding Iraq.
They say those who risked their lives fighting for their country have the right to protest economic policies and business practices that give them a slimmer chance of finding jobs than most Americans....