Tuesday, October 07, 2008

More on Iceland

The Icelandic president addressed his people today:

Fellow Icelanders...

The entire world is experiencing a major economic crisis, which can be likened in its effects on the world’s banking systems, to an economic natural disaster...

When the international economic crisis began just over a year ago with the collapse of the real estate market in the U.S. and chain reactions due to the so-called sub-prime loans, the position of Icelandic banks was considered to be strong, as they had not taken any significant part in such business. But the effects of this chain of events, have turned out to be more serious and wide ranging than anyone had expected.

In recent weeks the world’s financial system has been subject to devastating shocks... The effects have been that large international banks have stopped financing other banks and complete lack of confidence has developed in business between banks. This has caused the position of Icelandic banks to deteriorate very rapidly in the last few days...

The Government has, for its part, aimed for the sale by Icelandic banks of foreign assets and a reduced presence abroad, so that the Icelandic state, so small in comparison with the Icelandic banks, would have the capacity to support them. We should bear in mind in this connection that the huge measures introduced by the U.S. authorities to rescue their banking system represent just under 5 percent of GNP. The total economic weight of the Icelandic banks, however, is many times the GNP of Iceland...

There is a very real danger, fellow citizens, that the Icelandic economy, in the worst case, could be sucked with the banks into the whirlpool and the result could be national bankruptcy....

The position has today altered completely and for the worse. Major credit lines to the banks have been closed and it was decided this morning to suspend trading with the banks and with the savings funds in the Icelandic Stock Exchange.

The task of the authorities over the coming days is clear: to make sure that chaos does not ensue if the Icelandic banks become to some extent non-operational. For this the authorities have many options and they will be used. Both in politics and elsewhere it will be important to sheathe our swords. It is very important that we display both calm and consideration during the difficult days ahead.
How long before Governor Schwarzenegger has to give a similar speech?

**Update**

Looks like a lot of UK savers who used an Icelandic bank could be screwed:
Icesave: Question mark over compensation
The government faces having to explain to thousands of British consumers how they have may lost savings following the collapse of the Icelandic back Landsbanki.

More than 300,000 Britons are thought to have had their cash in the bank's UK savings arm Icesave.

Most thought they would have up to £50,000 of their savings covered by the Financial Services Compensation Scheme (FSCS) in the event the bank failed.

The UK's FSCS confirmed today that it is only responsible for "top-up" payouts to customers of Icesave.

It said this afternoon it was only gearing up to cover amounts over and above the €20,000 (£16,264) protected by the Icelandic government's deposit protection scheme.

This means that if the Icelandic government was unable to meet its obligations to UK savers they would only get back any holdings between €20,000 and £50,000; those savers with less than €20,000 would receive nothing.

5 comments :

Deflationary Jane said...

I've been following the iceland developments since you posted over the weekend. It's just amazing to see all this happen finally. We've been discussing it for years but were called "tinfoil hatters". It's a sick sort of comfort to say "I told you so".

I'm also incredibly sad that we're affecting other countries with our crap. The US deserves to loose it's ass, the rest of the world doesn't. Just like in Nov of 1999 and 2003, I'm ashamed to be an american.

However, I am at the moment thrilled to not be a californian any longer. Sacramento, in particular, is going to be hammered by this next leg down.

Bryan said...

This is what the vikings get for going soft and hanging out in geothermally heated jacuzzis.

Watch out. If things get worse, they may head back out to the longboats and start raiding up and down the British and Irish coasts.

Patient Renter said...

That letter from the President is pretty incredible. It's hard to imagine a modern US President writing something like that.

Bryan said...

Well, there are mayors with more constituents, but yeah.

smf said...

"I'm also incredibly sad that we're affecting other countries with our crap. The US deserves to loose it's ass, the rest of the world doesn't. Just like in Nov of 1999 and 2003, I'm ashamed to be an american."

Cut it out. No one forced these countries to follow our example. They each chose to go their own way.

Greed is international in nature and not based in a single region. This why I have always called this a 'Global Asset Bubble'.

Some had a field day calling out the problems in the US. But these stories were just a cover for others to hide their own problems.

The bubble was far worse in many other places as compared to the US. Ireland, for example, got even crazier in price appreciation that California.