You can write Iceland off

So the government that most people trusted to help the households through the storm hasn’t lived up to expectations. 

Tomorrow it will announce a new plan that is intended to help out individuals and households in trouble but it does invite the question of who will carry the burden of the economic crash. The answer is usually the same, the ordinary taxpayer. 

For most people, their home is their largest investment and in many cases their largest asset. Icelandic home loans are price indexed because no politician has managed to grow the cojones needed to place some of the responsibility of keeping inflation down on the lenders as well as borrowers.

After a couple years of rising inflation and the corresponding federal interest rates, real inflation ceased to exist and was driven by with growing interest payments being rolled onto customers, and the currency dropping because the owners of the banks were hedging huge bets against it.

Everyone loses out in an economic crisis but only some are bailed out. Savers in money-market funds were reimbursed by the government to the tune of 200 billion ISK. No one from the government or Central Bank has told the nation why. Dying companies with massive debts are being taken apart, sold to well-connected people for small change and the carcass is left in the nationalised banks. Who gets what and what is left behind is not information that is available.

Like businesses, individuals and households have been crippled with debt in the last few years. Nothing wrong with borrowing but the original deal that assumes an inflation of 2.5-3.5% goes quickly out the window with 10-20% inflation and price-indexation for a couple of years. People have been paying extraordinarily unfair amounts of money for the priviledge of being Icelanders. 

The government is crippled, and it shows best in the fact that their only solution for individuals is extending their loans for 5-20 years. It may lower the monthly payments now, but if the past is an indicator of the future, how are things really going to add up? Is everyone expected to be able to support loans that are dependent on the whirlwind that is the Icelandic Krona? It does not make sense. 

Businesses are getting write-offs and the CEO’s that bankrupted Iceland have transferred their belongings abroad or signed them off to their spouses. But there are no write-offs for the people who aren’t CEO’s and are increasingly struggling to make ends meet. The government intends to allow for write-offs where needed but who is going to be the judge of who needs what? The Progressive Party has suggested a 20% write off across the line for businesses and individuals and in the process carefully stepping on the trap of awarding more to those who have more.

What is the solution? Abandoning the price-indexation and applying for the European Union would help. If only to tell the world and the citizens of Iceland that there is a will to build a society on rules and laws that don’t only benefit a select few. Is it likely? Probably not. Nationalism will grow with worsening economic conditions, making people more untrusting, inward and short-term focused. It will take a massive battle but it needs to be done. And if the European Union will not come to us, we will come to it, become taxpayers and citizens elsewhere. 

And you can write Iceland off.

West Ham United Owners to Demand Extension From Creditors

 

West Ham United’s owners will ask an Icelandic court this week for a moratorium to prevent banks from seizing its assets and forcing the sale of the English soccer club.

From Bloomberg

The Independent Party made serious mistakes – but what about Samfylkingin?

Something wonderful happened this weekend. The Independent Party’s committee on the economic crisis actually managed to deliver a tough report on its party’s responsibility. It is an interesting read, here are the main conclusions. 

What should the Independent Party have done better? 

– The Central Bank made serious mistakes in lending to the banks and the worst mistake was to agree on the creation of the foreign savings accounts like IceSave. It should have reacted to the overheating in the economy already in 2004 or 2005. The public was not made aware of the possibility that the liability of the foreign savings accounts could lie with the Icelandic state. 

– It was unfortunate that the Central Bank should be under the governance of former politicians. The discourse about their work and the banks aims cannot be painted in political colours.

– Sufficient restraint and supervision was not performed by the Financial Authority, Central Bank and ministries. 

– The government stood for uncontrolled expansion of the state in the good times and the support of the Independent Party for the Progressive Party’s 90% home loans was ill-considered and ill-fated. The un-balance which the race between the banks and the Home Loan Fund caused was a disaster. 

– The privatization of the banks was highly questionable. The process was unclear and more favourable offers for the state were dismissed. The original ideology of spread ownership was ignored. The banks were handed to political allies who were inexperienced in banking, especially international finance.

–  The disbandment of the State Economic Research Institution was unfortunate, especially as nothing filled the gap. Its professional and independent research and comments on the economy could have been useful in the past few years. 

– The Independent Party’s hesistance to discuss the EU, monetary policy, the currency, state-finances and the operation of parliament  until the collapse of the banks has been damaging to the country. The party should have promoted stronger discussions in its ranks. The party must listen to members and not avoid discussing tough topics until it is in dire straits. 

– It is questionable that roughly 100 days after one of the largest economic collapses of a western state in times of peace, no one was made responsible on the behalf of the Independent Party. The message to the nation that no one should shoulder political responsibility is wrong. The Icelandic definition of political responsibility is not enough in this case. Political responsibility is not about a representative of the people staying on through thick and thin, even though he has made mistakes himself or mistakes have been made by his employees, but exactly the opposite. He should rather stand up and leave even in the cases where no laws have been broken, and let the institutions enjoy the benefit of the doubt, instead of putting their own personal reasons in the way. 

It is an interesting read, not least because on the same weekend (coincidence?) Samfylkingin decided to stick to the same people as before. I asked the question on TV yesterday where the young people of Samfylkingin were hiding? The only openly critical and outraged member is Jon Baldvin Hannibalsson, a 70-year old. Samfylkingin has always criticized the Independent Party for its blind loyalty to its leaders and lack of discourse in its ranks.

Has it now become itself what it despises the most? 

This report from the Indpendent Party does not wipe its slate clean, but it certainly is a necessary exercise in organizational democracy.

Words and sales-pitches

I was on TV yesterday where someone on the set was trying to convince us that his candidate had done a great job because he was less corrupt than someone from another party. And that the corruption he had stood for was such a small part of his wast area of responsibilities that it could not be reasonable to be hold it against him. 

As someone who is experienced in sales management I can clearly see that the product he is trying to sell has a lot of problems. That is usually the case when worse products have to be called on for comparison. 

So I am not buying, although I am sure a lot of people will fall for the well prepared sales-pitch. 

I have been told I hadn’t been agressive enough. That was a conscious decision. A woman on the set used a lot fewer words than the guy next to her. But I never stopped listening to her. 

I often find myself losing track when people who have been on debate teams in high school or been trained by Junior Chamber are talking. They talk a lot without saying much, but they know how to hog the limelight. 

Steingrimur J. Sigfusson has been famous for his long speeches in Parliament. What people remember about them is that they are long. 

Words are valuable but they can depreaciate. Renewal is a word that no-one will be buying in April because it is in excessive supply, without enough value to back it up.