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We're all Icelanders now

Robert Peston | 09:55 UK time, Thursday, 7 January 2010

If voters in the US or the UK had been given a vote on whether their governments should inject trillions of dollars into their banks (in the form of loans, guarantees and investments), it is pretty likely that those referenda would have been lost.

Icelanders protest (November 2000)Most opinion polls indicated that citizens were furious with their banks - and were not persuaded that letting them fail would wreak the kind of economic havoc that would impoverish all of us.

So most economists, central bankers and finance ministers would probably say that we should be grateful that in America and Britain the people aren't quite as sovereign (if that makes sense) as in Iceland.

However most of us should surely empathise with the majority of Icelanders who don't see why they should be punished for the greed and stupidity of a handful of banks and bankers.

Actually, let's be clear: they will vote in their referendum on whether they should be punished yet more for the mistakes of their banks; there's no doubt that Iceland and its citizens have already been firmly spanked for the failures of their financial system.

Icelanders' real disposable incomes fell almost 20% last year and are forecast to fall a further 15.8% this year.

In other words, each of them will be a third poorer on average as a result of the deep dark recession caused by the collapse of their over-stretched banks.

Of course, they all became unsustainably wealthier during the boom years of the early-to-mid noughties, when hot money gushed into high-interest rate Iceland as part of the global carry trade and was re-lent and re-invested all over Europe, but especially in the UK.

That said, losing income is always painful, irrespective of whether that income is sustainable and deserved in some fundamental economic sense.

Screenshot of Icesave websiteAnd by the way, those of you who put your money into Icesave accounts for the extra increment of interest that wasn't available from more mainstream banks: well, you too could well be charged with fecklessness and with receiving unsustainably high returns.

Yet you have been bailed out, by Her Majesty's Treasury - which is now insisting that Icelands' beleaguered citizens pay it back.

So let's be honest, Icelanders' reluctance to dig into their pockets to the tune of £3.4bn to repay Britain and the Netherlands is understandable.

And for me what this saga illustrates is something I've been banging on about for ages, which is the democratic deficit between people and finance, between citizens and big banks.

Icelanders now know, more than any nation on earth, that when banks run into difficulties, they have to be bailed out by all taxpayers.

We've learned that too.

But we weren't as aware of it as we should have been, before the crisis.

And, arguably, we haven't yet been properly consulted on what kind of banking system we want, what kind of risks we think the banks should run, for the future.

Given the economic price we've all paid for the reckless behaviour of banks, it's perhaps surprising that we're not all as angry as the Icelanders.

Comments

Page 1 of 4

  • Comment number 1.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 2.

    Robert, Maybe we are all angry and we are just awaiting the election to show how angry we are at a Govt which has sold our future for a recless 13 years of spending money the country did not have.

    As one student talking to a pensioner was overheard in the bar: We have given our tomorrow for your last ten years.

    We have had nothing but spin and fantasy for a decade. Labour have demonstrated they are incapable of change this week.

    We need a change. Some BBC comentators are just not in tune with ordinary people. They need to get out of the city more.

  • Comment number 3.

    It is important that people understand the difference between deposits, which are not supposed to be speculative, and investments, which are. Some folk, notably Icelanders and Equitable Life investors, try to blur the difference. And if a Government states that the first €20,000 are protected, depositors are entitled to take that at face value.

  • Comment number 4.

    Blogpolice

    Trying to make out this problem was caused in the last ten years is just a case of petty party politics, the seeds of our destruction were sown in the 1980s and then continuously fertilised ever since.

    Privatisation and the relaxing of financial regulations across the world, mainly under the guidance of the likes of Reagan and Thatcher are just as responsible for the problems we face today as the reckless activities of Blair & Bush.

    This is a structural problem, not a party problem.
    Labour and the Conservatives are equally to blame.

  • Comment number 5.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 6.

    Robert, you say

    'Icelanders now know, more than any nation on earth, that when banks run into difficulties, they have to be bailed out by all taxpayers'.


    Some of the Icelandic people (the ones who aren't economists, central bankers and finance ministers) are saying, 'why do we the taxpayers have to bail out the private banks ?'

    And it is a very good question.

    The international economists, bankers and finance ministers cannot allow Iceland to default, if they did and the Icelandic people just carried on, a little bit poorer but a whole lot wiser, then the whole financial house of cards will collapse as everyone could then see that the system is a confidence trick of outlandish proportions.

    A deal will be struck, more time to pay will be given, IMF loans and EU grants will be given and the global financial system will be saved for now.

    That the the UK taxpayer will foot the bill in the form of higher EU subsidies I have no doubt but at least those nice kind and considerate bankers can have another bonus.


  • Comment number 7.

    I wish we were Icelanders. Their government weren't so stupid as to bail out their banks, they let our idiot Brown do it.

    They also had the good sense to stop other countries ruining their fish stocks, and they have unlimited thermal energy. And they didn't give their country away to the EU or let their politicians launch illegal wars and steal their money for false expense claims.

    A good place to be.

  • Comment number 8.

    So the UK is out of pocket another $2-3bn?

    No problem, just keep the printing press running a bit longer and we'll be fine, right up until the point when people start to realise that the global financial system is a giant Ponzi scheme.

    Maybe David Cameron should get in touch with Robert Mugabe. He could be a useful source of advice when in happens, as it surely will in the next Parliament. Maybe after HM Government has stolen all the money they can make a start on personal property, like the US did in the 1930s and Mugabe has done recently.

  • Comment number 9.

    Robert

    The general population can't be trusted with government finances.

    For further evidence, look to how California has been brought to its knees with 75% of its expenditure fixed by ballot initiatives, but the same voters stopping the same government raising taxes to pay for those self same ballot initiatives.

    Iceland voters have a choice: Pay the money back now (or from 2016 as per the agreement), or pay through lost opportunites with the end of EU membership, through high debt repayments or through loss of an IMF loan.

    They have a choice. Unfortunately they are both bad ones.

  • Comment number 10.

    We know now that banks are beneficiaries of almost unlimited State-backed insurance against failure.

    What is the premium for this insurance policy? It seems to me that there is none, and there should be. Banks could choose the country offering the best insurance premium; investors could choose their banks based on the credibility of the guaranteeing Nation's guarantee.

  • Comment number 11.

    Robert, as I understand it the Icelandic government is merely being asked to honour the government guarantee element of deposits held by Icelandic banks as they opted out of the first x thousand pounds of the UK banking industry deposit guarantee scheme. For this they should pay, anything above that amount they have a right to baulk at.

  • Comment number 12.

    stabreim, you're correct:
    "It is important that people understand the difference between deposits, which are not supposed to be speculative, and investments, which are. Some folk, notably Icelanders and Equitable Life investors, try to blur the difference. And if a Government states that the first €20,000 are protected, depositors are entitled to take that at face value"

    Additionally HMG (at the time of the failure) covered to amount from €20k - £35k, this did not appear to be a speculative deposit.

  • Comment number 13.

    The other side of this, Robert, is where the mondey actually went. I think that the Icelandic banks lent to fund irresponsible acquisitions, many of them in the UK, by a small number of Icelandic companies.

    What should happen, surely, is that these loans should be called in. If the corporate borrowers can't repay, seize their assets, sell them, and use the funds to offset these liabilities.

  • Comment number 14.

    Private banks create a nation's money supply, and all evidence shows that the amount of money is not determined or controlled by central bank or government base money restrictions, but inversely that public demand for debt causes banks to overstretch and then pressurise the central administration for alterations in base rate.

    The banks are all too happy to exploit this inverted demand driven money machine as much as possible.

    The nation's money supply is in the hands of a select few motivated by personal profit. This cannot possibly work. The nation's money supply must be in the hands of the nation.

    Either figure out a different system that does not rely on fractional reserve debt-based deposit money, or NATIONALISE THE BANKS.

  • Comment number 15.

    And while I am at it. Some comments above suggest this disaster of a financial crisis is down to the Labour goverment. The fact is, it is down to Labour, Conservatives, the banks, the British people, the Americans, Liberal Democractic ideology, and several decades of over-zealous promotion of deregulation.

    The Conservative/Labour oscillation is a farce that detracts entirely from the basic problem: banks decide who gets clothed, fed, or educated, and they do it in just a centrally managed way as the Soviets and Chinese ever did.







  • Comment number 16.

    It seems that our government and the Treasury have forgotten the Reparations saga after World War I. It is far better to resolve this matter now, even if it means the UK and the Netherlands receiving far less than they voluntarily paid depositors in their own countries, than have it drag on for decades causing unimaginable problems. Also, did depositors in the Icelandic banks not have the common sense to realise they were putting their money at risk in a country of just over 300,000 citizens?

  • Comment number 17.

    I find your criticism of Icesave savers somewhat out of place, they thought they were investing in a reputable Bank backed by a proper Government regulated compensation scheme only to find that Icelands compensation scheme was not properly regulated and had little or no money in it, as for the interest rates, they were good but not impossibly good.
    Also Icesave savers lost out in the form of, by the time they were compensated, 3 months lost interest and lower interst rates when they reinvested their money due to the fall in base rate, which would not have occurred had the Iclandic sheme operated as it should have and paid out in a matter of weeks.

  • Comment number 18.

    Excellent piece, RP.

    I remember pulling into Guildford station on the Waterloo train some time in 2008 whilst reading an article in someone else's FT about the parlous state of Iceland's finances and how the country was being run like a hedge fund... out of the window a giant Icesave poster loomed all warm colours and flaunting its FSA approval.

    If I was struck then by the disparity of between reality and the hype, I'm completely astounded by it now.

  • Comment number 19.

    What did we buy with all this money?
    I personally cannot not see a lot of stuff around worth all this grief. Maybe a road or two (under the snow) other than that, what was worth it?

  • Comment number 20.

    Iceland is bankrupt. They cannot pay without the people suffering terrible hardship.

    Looks like they face terrible hardship anyway and may have to return to fishing and eating Seal blubber and give up international 'spiving'

  • Comment number 21.

    Kill the banks, yes. But the bulk of the populace are feckless in that they shouted hurrah when the ‘big boys’ having bought everything else that was earning us plebs at least a crust came to buy the building societies and giro was sold, the con men bankers/rampant capitalists held you spellbound, both Tory and Nulabour were complicite. As 'stabreim' has inferred, deposits were swopped for a few bags of smoke.

  • Comment number 22.

    My understanding is that all british savers were protected to the tune of £50k (or £35k as I know it changed) and they knew that before the invested.

    Then HMT decided to guarantee everyone 100% - this wasn't a decision of Icelands gov.

    HMT did this as otherwise they would be admitting that the FSA 'regulation' was completely flawed. Why did FSA allow British savers to invest in these accounts. No German or French savers lost money as their gov wasn't so stupid to completely deregulate the savings market thinking a country the size of Iceland could support banks with a balance sheet much bigger than the entire country.

    HMT then paid out the full 100% of everyones cash even if they had significantly more than the £50k which was guaranteed.

    Now HMT expect to be able to bully Iceland (population same size as Coventry) to pick up the tab for their and FSAs own misjudgement/incompetence.

    PS - I personally had suggested to a family member to get an Icesave ISA as it gave the best rate (only for 3k so under the limit) so maybe I was a bit foolish! - but then again in those days I naively believed the FSA worked!

  • Comment number 23.

    @14

    "The nation's money supply is in the hands of a select few motivated by personal profit. This cannot possibly work. The nation's money supply must be in the hands of the nation."

    Agreed

    "Either figure out a different system that does not rely on fractional reserve debt-based deposit money, or NATIONALISE THE BANKS."

    Would you trust this or any government to run banks responsibly for the good of society?

  • Comment number 24.

    The general public will have to wake up and understand that our current living standards have been built off the back of a massive debt mountain.Its nearly 2 1/2 years since it was obvious that the money had run out and we all needed to start cutting back. But still we are getting public sector unions insisting on 2% plus PAY INCREASES. After all its not their fault its the BANKS..

    The fact that GB continues to pay out above inflation increases to pensioners this year shows how politics / ideology gets in the way of common sense.

    If I was the Tories I would withdraw from this election and let Labour carry the can and let them implement the massive cuts that are required in the next 12 months. Without doubt, with this current government the UK would be technically broke within a year of the election.

    A new government could then rebuild with a clean slate in the knowledge that the Labour parties ideology of bashing the rich over recent years was just theatre, masking the fundamental mistakes of the government over the last few years.

    The public sector debt is a real measure of Labour's ability to govern..

  • Comment number 25.

    I dont understand this - people put their money into an Icelandic bank that was regulated by Iceland and NOT the FSA.

    The bank then went bust so depositors have a right to get their money back from the Icelandic compensation scheme which premuably they have done.

    Why should OUR government have paid out anything that they need paying back by Iceland? It is outside their juristiction!

    Bear in mind that a lot of people are still owed money from the Financial Services Compensation Scheme in this country for perfectly legitimate claims (I for one for a substantial theft perpetrated by my IFA) that the government/FSCS/FSA is dragging its heels on, so I dont see why payouts should be made to people who dont qualify.

    Good on the Icelanders - its not their problem that the UK and Netherlands have made some kind of unnecessary charity payment to people who lost money in Icesave.

  • Comment number 26.

    I love the comment about the Icelanders being punished by being deprived of EU membership ! Deprived of a bunch of venal and incompetent Eurocrats wasting their money, deprived of Spanish Fish Thieves hoovering up their fish stocks- and incidentally Iceland is the only European country that has a sensible system for managing fish stock levels.Etc ETC Et-blooming-cetera!

    On the main point; Yes we clearly are livid with banks and bankers. Their wealth is a product of the regulatory regime not of their own efforts and talent. All of them would have been down the toilet is the taxpayers hadn't beeen forced by their governments to shell out to keep them afloat. Thus a degree of humility and wearing of hair shirts would have been appropriate . The UK has a clear need to reduce its dependancy on banking and financial services, I heard someone say the other day that Goldman Sachs were considering moving to Spain because of the tax on bonuses, if one of them mentions anything like that again they should take him to Beachy Head thrown him off, and tell him to swim there.

    When India got The Bomb, Zulfikar ali Bhutto said that Pakistan would get it as well- even "if they had to eat grass" I'm afraid I feel like that about the Thieves and con men of the "financial services" sector the half wits who manage pensions,banks , insurance and all the reast of it: investing your money until its all gone.
    The UK needs to get back to using both brains and hands , making things for a living , not relying on the taxes paid by spivs who run up enormous debts for the country and then shrug their sholders when it all goes t*ts up and expect a hand out from every granny who ever buys vatted goods. It matters not how painful it will be to get back to having a real economy will be, we simply HAVE TO DO IT.

  • Comment number 27.

    Robert,
    This has little to do with banks, as you keep trying to insist.

    Iceland through it bank defaults owe Britain and the Netherlands £5 billion plus for money that the British and Dutch Governments imposed on Iceland.
    The Icelandic people have decided that they are going to forget the debt, and it won't be paid.
    There is no international court the Britain and the Netherlands can take Iceland to. At international level, the only court is called the military, and the only courtroom is called the theatre of war. They British and Dutch cannot do anything to get their lost money.
    Icelandic people can either pay the debt personally as has been proposed (is it £30,000 per Icelandic citizen, or some such amount ?), or stick two fingers up and say NO.
    They seem to be choosing the latter.
    So Iceland will suffer short term financial turmoil, have a problem importing as other countries will not trust their Icelandic credit, but within two or three years Iceland will be rejigged and able to re-enter the world financial system, and their citizens will not have had to bankrupt themselves to foreigners.


    Now compare with the UK.
    The UK could have let its private banks go bust twelve months ago. It would have hurt foreigners, and Britain would have been in financial turmoil for a year or so. Quite possible riots, as imports were restricted and food scarce. But we would have pulled through, and we would be stronger and better. The rich foreigners would have lost their shirts.
    Instead, the UK Government has indebted every Britain by, is it £50,000 each ?!? To Foreigners ! To pay for the amount the foreigners would have lost had the UK banks defaulted.

    Who is better off ?
    Who was cleverer.

    Personally, I would rather be an Icelander.

  • Comment number 28.

    The 320,000 people who invested in (the private company) Icesave took a risk - that's what investment is, putting up cash which may make you a lot of money or which you may lose. On this occasion the investors lost.
    Now, investors in any business or enterprise who lose their money do not automatically get their money back. Our (the UK) government decided that it would guarantee or compensate these people. That was our government's choice, to play with our tax money, not the Icelandic government's. Then the UK (and Netherlands) expected the money to be repaid and the Icelandic government said fair enough, we'll give you it back as it was one of our (private) banks. But the interest rates and timings of repayments being demanded would further cripple the country as it tries to build itself back up and 1/4 of the electorate felt strongly enough to put their names to a petition to government. The president can hardly ignore that!

    I have to say I'm ashamed to be "British" when we carry on like this. Private investors stood to make a lot of money for themselves from a private company - that company went under and folk lost out. Why should taxpayers have to foot the bill? I never lost money because I never made a greedy investment with a company offering too-good-to-be-true rates. I have lost money through the economic situation because my house is worth less than I paid for it and I've been unable to sell it (even at a much lower price than I'd like) because of the way the market is. I am not being compensated by the taxpayer, but I accept that because I made an investment and it was my choice to do so. I just don't understand how a so-called Labour government can reward the rich for risk-taking at the expense of ordinary working folk. I say good on the Icelanders for standing up for themselves and well done the President for listening to his people. Even if we got 1/4 of the country to demand action, I doubt Westminster would take any notice. So much for democracy.

  • Comment number 29.

    Wardy29

    No, Labour, Conservative, the establishment. Wouldn't trust any of them. Some different group needs to be promoted.

  • Comment number 30.

    What makes you think we ARENT as angry as the icelanders?

    Personally, I support them in their actions. They want their economy to be run on actual wealth and not some imaginary wealth "generated" by theoretical profits.

    They should stick to fish and tourism. Stocks of those should at least be sustainable.

    I wonder what WE should stick to?

  • Comment number 31.

    As usual too many posters here simply recycle their personal prejudices even if completely irrelevant to the story. Bill's eurosceptic rant is particularly laughable given that Iceland is now desperate to join the EU, and many cooler heads in Iceland despair at the inevitable setback to their ambitions that this decision will be.

    The word responsibility is easily bandied about, but Iceland has a responsibility to the UK and Netherlands Governments to repay them for the compensation they shelled out due to the recklessness of Icelandic banks and the inadequacy of Iceland's regulatory system. Their president has failed to accept this responsibility, which is shameful. Of course it's tough for Icelanders to lose so much, but conversely they had much less to start with before their banks and business community started to behave so recklessly, and the population in general - through their parliamentarians - failed to ask the right questions and ensure things were done properly when times were good.

  • Comment number 32.

    You need to make mention that Icesave partially opted out if the UK Financial Services Compensation Scheme (FCSC), which should have shouldered the burden, by nominating the Icelandic Compensation Scheme as guarantor.

    Presumably, in turn, the Icelandic government was the guarantor of the Icelandic Compensation Scheme (or did they inherit the burden when they nationalised their banks?).

    Don't blame the UK Icesave savers, they invested in a scheme that was covered by the FSCS. Whoever it was that allowed Iceland to partially opt-out of FSCS, is the one truly to blame.

    Money is a trust and promises trading system; we all have to be careful, and we are all trusted to honour our promises.

  • Comment number 33.

    #9 "The general population can't be trusted with government finances."

    Interesting: as, at least in UK, neither can the govt who should be in charge then?

    I wonder if the Icelanders will decide to repay the Dutch but not the UK? The Dutch never used anti-terrorism legislation against the Icelander banks unlike Gordon Brown. As our govt behaved in a totally unforgiveable way towards Iceland I do hope then tell the UK exactly where to put the demand for money

  • Comment number 34.

    I still don't understand why we had to bail the banks out. Instead of having bankrupted private enterprises whose assets would be cherry picked by those best operating banks we have now virtually bankrupt the country.

    Letting the banks fail would have impacted UK PLC, in that we would have lost a great deal of GDP. On balance though would that have been more or less than the vast amount of debt that we've had to take on to protect some of that GDP? I suspect that we've overpaid.

    The problem was that once Northern Rock wasn't allowed to fail, none of the more prestigious banks could fail either. Darling and Brown backed themselves into a corner and the banks took advantage. They are now in a position where they can't criticize the bank too harshly in case they take their business elsewhere. In effect the situation is worse now that it was before.

  • Comment number 35.

    It is not made clear in your article what precisely the Icelandic people are being asked to repay and what aspects of that they are complaining about. The Icelandic government guaranteed the first 20 000 euro in their banks. They have agreed that this amount will be repayed in full. What the Icelandic people have issue with is being expected to repay the first 100 000 euro the money held in IceSave, and the terms under which they will repay. It will cost each Icelander £10 000.

    The Icelandic people are being held to random by the UK and Dutch governments, as the amount of financial aid they will lose if they cannot reach and agreement is extraordinary. This is in addition to the fact that the UK government used anti terrorist laws against the country shortly after the crisis.

    The UK is affectively behaving as a loan shark. Saying "you have to pay us back more than you ever agreed to, or can afford to, and you must do it on our terms or the consequences will be dire". For me this issue is not so much about what the Icelanders should do, it just makes me feel ashamed to be British.

  • Comment number 36.

    "My understanding is that all british savers were protected to the tune of £50k (or £35k as I know it changed) and they knew that before the invested."

    That only applies to institutions that are FSA registered. As far as I know Icesave WASNT therefore the UK regulatory system does not owe the savers a penny. They knew the risk when they deposited their money.

    So why the government guarrantteed 100% of their deposits is beyond me.....it wouldnt do that for anyone who had lost money in a legitmate FSA regulated scheme in the UK so why are the Icesave customers so special. And why would Iceland pay for it!

  • Comment number 37.

    #22 danj -- I agree, this is in fact "our" mess. The FSA and gov't are to blame for allowing Iceland to trade here. The people affected should sue the individuals working in gov't and the FSA (same goes for the Dutch and their equivalents). Note I say individuals, this shouldn't be a taxpayer burden. I'd even hazard to suggest that those responsible should face criminal charges for fraud -- not knowing about the risks of Iceland is not an excuse.

  • Comment number 38.

    Government minsters are amateurs as far as financtial matters are concerned. They should have been better advised by Treasury civil servants and the Bank of England. They should not have been so easily persuaded that the banks should not be allowed to fail.

    Banks have been closed before for short periods without serious problems. The administrators would have been able re-authorise ordinary day to day banking activities quite quickly, after freezing deposits above the guaranteed ammount, in order to sell off parts of the businesses as going concerns.

    The argument that failure would destroy future confidence in British financial services is weak, because that confidence had already been virtually reduced to zero. A reconstructed banking system, incorporating the lessons of the past, would have inspired more confidence, anyway.

    The Icelandic President is to be congratulated for intervening, so that the Icelandic people can decide. The common sense of ordinary people is often wiser than the views of governments which have been over-influenced by armies of lobbyists.

  • Comment number 39.

    Do not forget that when the Iceland government rescued these banks they did so for the benefit of their own citizens by making sure that no Icelanders lost any money.

  • Comment number 40.

    If I recall correctly, Iceland said at the time that its compensation scheme would cover Icelandic citizens but not foreign depositors. That statement didn't exactly help their cause.

    I suspect that the UK reimbursed depositors because Icesave were allowed to operate in the UK, so British regulatory authorities were partly responsible - if they'd had doubts about its viability they could have withdrawn its licence. But the compensation should have been limited to the UK guarantee limit at the time (£50,000 per person).

  • Comment number 41.

    "And, arguably, we haven't yet been properly consulted on what kind of banking system we want, what kind of risks we think the banks should run, for the future".

    Robert..... absolutely, completely 100% correct.

    Our money system here in the UK, based on the free currency of the Pound Sterling, should be under the control of the British "people" as a whole, not under the control of that minute fraction of our society that constitute the 'money-changers' in the City of London (who we know take none of the risks and gain an excessive share of the returns).

    You can't blame these bankers for wanting to make as much money as possible by taking as few risks as possible (after all this is the objective of most businesses), but if we want a fairer more equitable and indeed productive society, we really have to stand up to them and say.... enough of this rigged system. The British people have had enough of being ripped off by these financiers and bureaucrats at the FSA (who supposedly manage the financial system but have a vested interest in it for their future employment), under the ridiculous mantra that "Financial Services" is the only thing we in the UK can be any good at, and that it is therefore critical to the health of the UK economy.

    This is complete rubbish.

    But how do we change things?

    All our politicians are running scared of proposing anything remotely radical enough.

    The bankers are just sitting there hoping it will all go away so they can carry on feeding at the trough.

    Maybe (when the weather gets a bit nicer....) direct action is the answer?



  • Comment number 42.

    I invested in Icesave - but only under the assurance that my investments were covered to £35,000 (as it was at the time) under the Financial Services Compensation Scheme and its Icelandic equivalent. Landsbanki/Icesave may not be a UK bank, but Iceland are part of the EEA and are required by EEA law have a scheme to guarantee deposits.

    Therefore when Icesave collapsed I expected my money to be paid back (although anyone with over the £50,000 FSCS limit, as it became, were lucky and took a risk). The FSCS paid their part of this, but I was amazed that Iceland chose only to guarantee the deposits of domestic customers and violate the EEA treaty. That the Icelandic deposit protection scheme was inadequate was not the fault of the UK government.

    I don't feel I was taking a risk by making a guaranteed investment and don't see why the Icelandic government should be able to escape from its obligations. It's a large sum of money and the repayment plan should be considerate to Iceland's position, but it's not acceptable to simply refuse to pay.

  • Comment number 43.

    Iceland should never have played hedge fund games.

    It is right that they feel the burn now- rather than turning on the creditors, you and I, they should look more internally at the masters of their destruction- their own bankers.

    To watch the Icelandic President lord their 'democractic' principles in putting it to a referendum is just wet. What then is a Parliament for and who is the executive elected by? Ridiculous and a gross cop out. He just wants to be on the cover of Hello.

    I think we should send over the best/most expensive marketing/sales force with a wapping budget to lobby the Icelanders into agreeing anyway- just as a slap in the face to him...We should also lobby for a refendum on whether, if the vote is lost (by him), he will step down/resign and do the honourable democratic thing in wasting their money on a referendum. I bet he won't resign.

    The great irony in all this is that the Icelanders are creating the mother of all rods for their own back. They are after a hand out from the IMF, and are already completely untrustworthy to the market.

    It seems topical for some to talk about how easy it would be for Iceland to survive bankruptcy/default as a nation. Rubbish. Yes they have thermo energy, yes they have fish. But hang on a second- in 2005 their imports were around $4.5billion, their exports approx $3.2billion. The UK imports over 14% of their exports worth half a billion per year.

    Life could be made very very difficult for the Icelandic people if their debts are not honoured, and all against a backdrop of unemployment which is at c.8%.

    Let us talk about manageable repayments yes, by all means, but let us not think that there is any remote posibility of Iceland being able to 'go it alone'.

  • Comment number 44.

    Didn't mind bailing out the banks.

    Did mind bailing out the bankers. Why should they continue to be multi millionaires and billionaires, hanging on to nearly all of their fortunes, when they had made so many people lose jobs, pensions, homes and health?

    Did mind them whining "but we need our bonuses". (And I am not referring to the underpaid clerks and cashiers at the bottom of the heap.)

    Did mind them whining "but we need deregulation". And the G20's craven acceptance of this.

    Angry? Yes. Very.

    P.S., given the size of the Iceland economy, and the state of the Iceland economy, and the fact we made the same mistakes with our financial sector, Britain should write that debt off. 3.4 billion is a big deal to Iceland, but a drop in the ocean compared to bailing out the British bankers.

  • Comment number 45.

    #29 Oblivion says "No, Labour, Conservative, the establishment. Wouldn't trust any of them. Some different group needs to be promoted."

    In Scotland we're already doing this. It's called the SNP. The general and albeit slowly growing view up here is that the establishment as represented primarily in terms of the economic influence exercised over the Scottish economy by the Treasury and the City is something Scotland can no longer afford.

  • Comment number 46.

    Bankers in Iceland spotted a loophole in the system soon after the ones in London did. Or, at least , those who thought about the matter at all did.

    The bankers took the risks and profits, but the guarantees were provided gratis by the taxpayer.

  • Comment number 47.

    Do they grit the pavements when its icy in Iceland?

    Well, if they do - they're better off than us!

  • Comment number 48.

    Glad you're on the same page now Robert!

    It is somewhat confusing however - this morning the BBC claim that Iceland is in danger of jeopardy of impacting it's IMF loan - specifically saying

    "A successful resolution to the dispute is essential if Iceland is to continue accessing the $7bn of financing from the International Monetary Fund and other Nordic countries - funds seen as crucial to its economic recovery plan. "


    ...however this is not how it's being reported elsewhere:

    "An Icesave agreement is not a condition for Iceland's program with the IMF, so long as the program is fully financed," said Mark Flanagan, the IMF's mission chief to Iceland, in a statement.

    So who is providing this mis-information? Is our Government up to it's old spinning tricks and trying to scare the Icelandic electorate into voting YES?

    I disagree we're not as angry as the Icelanders - but the suspension of Democracy in this country has meant there has not been an action to go along with this anger (also Icelanders are paying right now - we haven't started yet because the Government have it all sitting in the deficit).

    If I were an Icelander - I would be issuing a "Come and get it if you think you're hard enough" statement to the UK and the Dutch. Unlike us they don't rely on international trade as much as us - they don't import energy and they have all the fish they need.

    Sources for the IMF loan stories:

    http://online.wsj.com/article/BT-CO-20100105-711545.html
    http://news.bbc.co.uk/1/hi/business/8444829.stm

  • Comment number 49.

    "those of you who put your money into Icesave accounts for the extra increment of interest that wasn't available from more mainstream banks: well, you too could well be charged with fecklessness and with receiving unsustainably high returns"

    Icesave rates were no better than many other institutions - at the same time as Icesave offered a fixed bond at 7% in 2008, there were similar/same rate available at Leeds BS, Yorkshire BS and others - are we saying these pillars of mutual building society movement are not mainstream

  • Comment number 50.

    24. At 11:39am on 07 Jan 2010, martin hughes wrote:

    "A new government could then rebuild with a clean slate in the knowledge that the Labour parties ideology of bashing the rich over recent years was just theatre, masking the fundamental mistakes of the government over the last few years"

    ....so I'm assuming this new Government wouldn't be retaining the capitalist system then - as changing the crew does not affect the ship's ability to float in any way.

    I'm guessing you're not actually looking for a solution or even prevention of the problem - but rather a Government which favours the rich and the inequality of wealth - possibly because you feel you're a member of the Bourgoisie (regardless of whether you are or not)

  • Comment number 51.

    Lots of interesting points coming forwards.

    A few from me:

    1) We need to differentiate between a Nationalised bank, run (down) by corrupt politicans for their own polictical advantage, and a State bank, run independent of Politics, but owned by all of us with a clear operating mandate.

    2) Marketing Icesave was probably done by Brits, who phrased the adverts to hide the downside and boost the possible upside. You have to be a very clever jo/jane to understand completely what you were comitting to. So was this scam the fault of the Icelanders or their British employees/ ad exec?

    3) We need somehow to inject personal responsibility into everybody. If we all benefit from a boom, we can't then deny that we shouldn't suffer in a bust. Be it wage/job/lifestyle cuts, we have to bear it. The laws of Physics are absolute.

    Ultimately we need an honest government to govern us sustainably, gently and honestly.
    I have not been governed by any British goverment since I was born 50 years ago. I've just been exploited and scammed. Sadly for Britain, I don't see this changing any time soon.

  • Comment number 52.

    28. At 11:46am on 07 Jan 2010, Fay fae Fife wrote:

    "The 320,000 people who invested in (the private company) Icesave took a risk - that's what investment is, putting up cash which may make you a lot of money or which you may lose. On this occasion the investors lost."

    ....but are savers 'investors'? I really don't think I put money in my savings account with the same risk level as investing in a corporation.

    I understand the waters are muddy - but I don't think it's fair to accuse the people who put savings in a bank which had been approved to operate by the authorities in this country - as being ignorant of the risks.

  • Comment number 53.

    "Given the economic price we've all paid for the reckless behaviour of banks, it's perhaps surprising that we're not all as angry as the Icelanders."

    I'm very angry over the corruption and failure at high levels in both our financial and political institutions. But, like many other I suspect, I have nowhere to express that anger other than these pages.

    In the midst of the worst economic crisis this country has ever seen, with bankers demanding billions in bonuses for billions in losses - both covered by the taxes of people earning far less than them - we've had to endure politicians whining that the lies they'd told over flipping mortgages and duck houses all fell within the rules.

    That may be last summer but I still want to march on Westminster and I bet there'd be as many as there were for the Iraq Invasion protest - maybe more as it becomes clear from Tony Blair's testimony that politicians will tell us whatever they have to, to get whatever they want. Definately more people, when the cost of this really sinks home.

    And now, bankers walk away with their millions and politicians have decided not to legislate on expenses, just shake up the recommendations and will probably have the opportunity to vote on expenses "options".

    http://blogs.news.sky.com/boultonandco/Post:f783f475-1e84-42a3-a8d6-65b47fb840d6

    If someone will explain how you organise and publicise a protest march in London to see bankers bonuses cut and politicians salaries/expenses cut (that should sort the profiteers from the public servants) I'll gladly get the ball rolling.

    My fear is politicians have no concept of how angry the nation is - they just carry on trying to score points on each other, schoolboys calling names while Rome burns around them - and the election will see a disillusioned public with no clear party to vote for, lost at the polls - hung parliament for sure.

    No wonder Moody's is warning of civil unrest

  • Comment number 54.

    31. At 11:50am on 07 Jan 2010, grimble wrote:

    "The word responsibility is easily bandied about, but Iceland has a responsibility to the UK and Netherlands Governments to repay them for the compensation they shelled out due to the recklessness of Icelandic banks and the inadequacy of Iceland's regulatory system."

    ....or the UK's regulatory system?

    ...and who asked the UK and Dutch Governments to step in an pay? Did the Icelandic Government? - or was the reality that the Government here stepped in for fear of a run exposing the precarious situation in this country at the time.

    As someone pointed out the Govt. changed the compensation scheme (and I bet they didn't check with Iceland first) and on top of that they're charging interest on the loan which Iceland didn't really want. Technically it's the banks problem (which went bust) and the country should ignore the demand. I believe when you purchase a distressed asset the outstanding debt is not transferred to the new owner - but remains as a burden for the bankrupt.

    There is a valuable lesson here - this is why Governments shouldn't meddle in banking. There is an assumption that the debt has been taken on by the Icelandic Government - and we all know what assumptions do.

    If someone steps in and pays your Gas bill without asking you - do you then simply pay them back and all the interest they're charging you?

    .....just don't try and pay my gas bill - because you will not find me so accomodating.

  • Comment number 55.

    #47 nautonier wrote:

    Do they grit the pavements when its icy in Iceland?

    Well, if they do - they're better off than us!

    ---------------------------

    Don't fret!...BBC news just showed the outside of 10 Downing Street and the pavement and road outside were well gritted.

  • Comment number 56.

    Let us understand that Icesave was under Landsbankinn UK. Wich was a britsh bank, not an Icelandic one. The british government recieved tax money that Landsbankinn UK paid them.
    As an icelandic citizen I find strange that I have to suffer financially and pay debts for a bank that opperated in britain even though it was owned by icelanders. It was not an icelandic bank.
    And than we have to consider the question: Would Gordon Brown have tackled other nations in the same way he did Iceland? The answer is NO! Would this been an USA bank or an French bank there would have been a diffrent story.
    The british government should go after the people who are responsable for this Icesave dilemma, not the nation they come from. For an example one of the men who owned Landsbankinn owns a company that owns the premiership team West Ham.

    Best regurds, Steini V.

  • Comment number 57.

    I'm a former icesave investor. I agree that I received unsustainable returns. Indeed I guessed as much at the time, which is why I planned for the future on the basis that it wouldn't continue. But if investing in an account backed by what appeared to be the full faith and credit of four different governments* is fecklessness, what exactly would you count as cautious - a mattress?


    (From The Times, 8/10/08: "Icesave said that in the extremely unlikely event that the Icelandic Government was not able to meet its guarantee three other Scandinavian governments - Sweden, Norway and Denmark - would back Iceland in an emergency.")

  • Comment number 58.

    26 TheLurcherman / 27 TrustedFriend_Com

    Good posts - bank failures would have been extremely painful - it would have been a national crisis I am sure. But I am not convinced that the current path we are on will be less painful.

    Does anyone honestly think that the UK banks we have "rescued" have posted their last financial loss? The bulk of their business has been buying FOREIGN debt liability from the US - and 1 in 10 PRIME mortgages in the US is now two months behind on payments. Who do you think is going to pick up the bill when that lot goes south??

  • Comment number 59.

    Just a postcript to my note of 51:

    I didn't mean to suggest in my responsibility note, that it's all our fault so shut up, but rather we need to have our eyes open more, and call a con artist a con artist, not a banker, govt official, ad exec etc etc.

  • Comment number 60.

    There is an absolutely fundamental error in many of these comments and the BBC's reporting. Iceland isn't refusing to reimburse the debt. Icelandic opposition to the bill by no means equals opposition to repaying the debt. The Icelandic president has only vetoed the bill in its current form, which means that if it is rejected in a referendum, certain terms of the Icesave deal will have to be negotiated or perhaps settled by an arbiter. This does not withdraw the Icelandic government's full commitment to reimbursing the debt. Whatever the outcome of the referendum, if indeed it will be held, and any ensuing negotiations, Iceland remains committed to repaying the debt and the president has already signed a previous law on such reimbursement.

  • Comment number 61.

    The financial crash has been described as a black swan event - a perceived impossibility later be found to be true.

    Nassim Nicholas Taleb's Ten Principles for a Black Swan Robust World:

    1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.

    2. No socialisation of losses and privatisation of gains.

    3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

    4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.

    5. Counter-balance complexity with simplicity.

    6. Do not give children sticks of dynamite, even if they come with a warning.

    7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

    8. Do not give an addict more drugs if he has withdrawal pains.

    9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

    10. Make an omelette with the broken eggs.

  • Comment number 62.

    38. At 12:08pm on 07 Jan 2010, stanblogger wrote:

    "The argument that failure would destroy future confidence in British financial services is weak, because that confidence had already been virtually reduced to zero."

    If confidence had already been reduced to near zero then I would not have left my savings in my bank - and nor would anyone else.
    Therefore confidence had not fallen that far and the 'weak' element is assuming it had.

    Trust me, when confidence really fails everyone takes their money out

    ....and as you probably know, banks only actually hold 1/10th of what they lend out - presuming there will never be a request to withdraw everything at once.

    It's very easy to sit here after the event and scream that banks should have been allowed to fail in October 2008 - but surely, since then you must have realised how short the banks were and how many would have actually fallen?

    Removing even 30% of banks in this country in a few months would be catastrophic. The free market is based on the assumption that the collapse of one entity will simply produce new market entrants to replace them, but there are 2 flaws to this in banking

    1 - It takes a long time to set up a bank, it's not like opening a shop - and there would have been a period where the availability of banking services would have been non-existant. This would have allowed any surviving banks to assume a Monopolistic position and charge us whatever they want - not exactly adhering to free market principles.

    2 - Banks (unlike other free market participants) are very much interlocked through investments and counterparty relationships. Again a shop might fail and it has no effect on the rest of the street - if a bank fails it will have a large effect on the rest of the sector.

    Don't get me wrong - bailing out the banks was a very bad idea - but it was marginally better than not doing so.

    Best thing to do is read and understand why the collapse happens in the first place and then tackle the fundamental cause of collapse (and over-expansion) and make all productive activities 'not for profit'

    ....unfortunately the lazy minority of this world won't get out of bed unless they are motivated by 'beating their neighbour' and incorrectly assume the rest of us think the same.

  • Comment number 63.

    #56

    Landsbankinn UK?

    I understood that the full name of the Icelandic bank was 'Landsbanki Islands hf', an Icelandic bank.

    The only UK elements were purchased and brokerage facilities- Heritable Bank and Landsbanki Securities (UK) (incorporating a few other UK strategic purchases-mostly brokerages).

    The Icelandic Financial Supervisory Authority, pulled the plug on Icesave, noone else.

    Branches in London administered the money- but there's no doubt where it was going...to Landsbanki in Iceland.

  • Comment number 64.

    Robert,
    I would welcome you to Iceland with a handshake and a Viking hospitality.

  • Comment number 65.

    28. At 11:46am on 07 Jan 2010, Fay fae Fife wrote:

    "The 320,000 people who invested in (the private company) Icesave took a risk -"
    Utilising this argument everyone (90% + of the population)in Britain with money in one of the UK clearing banks (private companies) that had to be bailed out &/or quantitavely eased took a risk and should have lost their money.

  • Comment number 66.

    ...........when banks run into difficulties, they have to be bailed out by all taxpayers...........

    When are we going to get a proper system of Bank or Financial system oversight in this country? If we are going to pick up the tab when Banks fail why can't the overpaid Financial "oversighters", such as the FSA and the Treasury, start to earn their money? We have the understanding to set up financial models that can assess the structure of financial operations and therefore risk, why are we not starting to put a new control mechanism in place?

    However, I suppose, if a small country such as Iceland, didn't realise the inherent risks of what their Banks were doing, we had no chance, especially with our three headed oversight system.

    Incidentally, my wife is the cash investment expert and in spite of Icesave topping most interest comparison sites, she steered clear of them... if it's too good to be true etc..........!!!!!

  • Comment number 67.

    Well as I understand this the the Icelandic deposit insurance fund is going to pay but it cant pay out al the amount because it lacks the funds to do it. The Icelanders say that its not up to the tax payer to bridge the gap because EU law 94/19, about insurance funds, prohibits government liability on Insurance funds (something about competition). They also point out that Britain refused to pay lost deposits in UK banks branches in Guernsey and Mon island because they had not got any taxis from those accounts. The UK government got 40% capital tax from icesave accounts but the Icelandic government got nothing. So Iceland didn‘t see a penny of the Landsbanki Icesave deposits. Money in the deposits was used to invest in companies and property in UK and EU zone, EEA. Now is it fair to let them pay you guys back money they never got them selves?

  • Comment number 68.

    51. At 1:06pm on 07 Jan 2010, Crookwood

    1) I think this is a very important point and should not be overlooked. There is a vast difference in the two and yet the media seem to indicate they are one and the same.

    2) I think there are many people who can be blamed for this mess - but none of them indivdually - they all paid their part.

    3) Why do we have to 'be responsible' and accept the cycle of boom and bust - when bankers didn't. I mean surely when the bust hit the entire banking sector should have been redundant after it's failed gambles - and yet it was saved. It's a bit rich to say some sections of society have to act responsibly while others are in fact rewarded for their ireesponsibility and lack of understanding.

    I can forgive a Jo/Jane for picking the wrong bank account and they should not be held to account for doing so - but I cannot forgive the bankers who claim to be 'experts' but don't actually understand how their business works and why it follows the same cycle of boom and bust.

    I mean your average banker (and mainly I mean investment banker - but the same applies) doesn't even question why he gets paid so much!!
    The banker just assumes he's "very good" and his wages are a reflection of that - unfortunately he is not that good and the reason he is paid so much is because the profit is being extracted from future labour - i.e. he's spending the future productive income of the country before we actually produce it.

    Some good discussion points raised.

  • Comment number 69.

    Just to clarify a little misunderstanding:

    The Icelandic government has agreed to compensate for Icesave.

    The dispute concerns the terms which were unilaterally decided by the UK & the Netherlands.

    The terms will be voted on, not whether Iceland should pay.

  • Comment number 70.

    #55 DebtJuggler

    #47 nautonier

    What will make you laugh is when you find out that our mammouth stocks of grit and rock salt were sold off about 8 years ago when the price was at historical lows by Gordon Brown!!

    Grit - Gold - it makes no difference...

  • Comment number 71.

    56. At 1:16pm on 07 Jan 2010, Steini V

    I completely agree - you can keep hold of 'my share' which the Government stumped up on my behalf - I'll get it back off them later when they're begging not to be hung, drawn and quartered by the bloodhtirtsy mob.

    Just make sure the rest of your people don't buckle under the threats of removing IMF money and terrorism charges and vote to pay the money back.

    Alternatively you could offer the payment in fish - but insist on delivery. I would love to see 6 Billion Mackerel being dropped on Downing street by the Icelandic fisheries.

  • Comment number 72.

    To 56. At 1:16pm on 07 Jan 2010, Steini V & and any other people from Iceland reading this post.

    I'm from the UK but I say good luck to you, you've been bled dry by private banks, so have the people of this country. If I were Icelandic I'd be protesting with you. In fact I might just join in for the hell of it.

    This is my third recession.
    I’ve witnessed the damage caused by irresponsible financial institutions first hand in the past, and I’m now witnessing it again.

    I just don’t want to have to witness my children struggling through yet another economic mess in the future caused by the same irresponsible, and let’s face it, greedy, financial institutions.

    It’s easy to blame those who borrowed too much.
    It’s even easier to blame those who lent too much.

    But the blame game doesn’t solve the issue, it just deflects people’s thoughts away from the business of preventing future destitution and misery.

    So I post again, we (the State) need control of the creation of money, we need a State Bank.


  • Comment number 73.

    60. At 1:23pm on 07 Jan 2010, Paul Emerson wrote:

    "Iceland remains committed to repaying the debt and the president has already signed a previous law on such reimbursement."

    mmmmmm on a debt where the interest alone is the same size as the annual education budget?

    I think this is merely the opening gambit in a bigger and longer game. I agree there is no definite suggestion of immediate default, but I know if the UK owed that proportion of money then I would be against making any payment whatsoever because you won't be able to pay any further debts that arise and there's not much point paying one debt if you are bankrupted by the next.

    ....especially when you're talking about your childrens education.

  • Comment number 74.

    You forget the other differences

    Iceland allowed it's banks to go bust, so why do it's tax payers have to pick up the bill, as far as I'm aware they weren't underwritten by the Icelandic government?

    Did the US tax payers pick up the bill for Lehmans?

    Is it also true that the Icelanders think (and it is backed up by independents) that the deal imposed on them is actually more pernicious than the terms imposed on Germany at Versailles after WWI? You would have thought that Brown would be aware of his history having studied this period, and his many books on "courage"

    Is it not the case of classic distraction?

    If the FSA and Bank of England had actually looked at the finances of these businesses they wouldn't have allowed anyone to invest in them?

    So therefore, the fault lies with the UK regulators, and if UK regulators failed...then these amounts should be underwritten by the UK government?

    Thus it is simply another charge to be added to the rap sheet of TRH Gordon Brown

    No reward for failure

    Call an election

  • Comment number 75.

    Three crows sitting in a cave.

    The fourth crow just flew in from D10 "Did you hear - Icelanders are saying Sod off!"

    echo - "sod off sod off sod off"

    Other crows join in "sod off sod off sod off sod off"

    Does no one among your readers (sorry, most) - nor the BBC itself care about the facts as long as they can join the "Sod off sod off" quire?

    Is there some comfort found in that echo?

  • Comment number 76.

    66. At 1:48pm on 07 Jan 2010, dontmakeawave wrote:

    " We have the understanding to set up financial models that can assess the structure of financial operations and therefore risk, why are we not starting to put a new control mechanism in place? "

    ....which isn't even true!!!

    The vast majority of Risk models only work effectively in rising markets - when the markets fall they all fail and become grossly inaccurate.

    This is why it's so frustrating - there is "what the public thinks bankers know" and then there is "what bankers actually know" - the two are very different.

    Even the infamous VaR measurement is a joke - it's not a 'reading of risk' as most fund managers interpret it - but actually a "probability of the amount of value at stake within certain parameters"

    I.e. the difference between me telling you "don't invest in that, it's risky" and me telling you "the value of shares can go up as well as down"

    Want to hear another 'iceberg sized hole' in the industry's mis-understanding of riks?

    The stress tests - so relied upon by Governments - are all based on historical volatility i.e. previous events.

    So they can tell you how well bank A would stand up to another 1929, or another 1974 - but is any one crash like another? - I don't think so.
    However your Government and mine are now using these measurements to see if any bank is 'stable and secure'.

    Oh dear, oh dear, oh dear....

  • Comment number 77.

    53. ArnoldThePenguin:

    "No wonder Moody's is warning of civil unrest"

    Are they?


  • Comment number 78.

    Dear Mr. Preston

    As an Icelander I would like to thank you for an impartial comment on the Icelandic financial situation. It is extremely difficult for a small nation to get the right message through e.g.what the decision of the Icelandic President to exercise the right to veto the new bill on state guarantee on the IceSave loan passed by the Parliament on 31 December really entails.

    In a previous bill that was passed in August last year on this issue the parliament had worked out some terms and conditions that are merely meant to ensure the liquidity of the sovereign state to repay the Icesave loan. Iceland is not running away from its obligations.

  • Comment number 79.

    Re #57

    Use a mattress! The trouble with mattresses is that when our Gordon devalues the currency (either by a thoughful controlled devaluation to reduce the value of the government debt or Crash devaluation imposed by Bond purchasers from outside the UK) You will still end up like those poor savers in Zimbabwe.

  • Comment number 80.

    The real anger here will be from our children and grandchildren who will have to pay a high price for the recklessness of banks and governments.

    Governments with unrealistic promises who only push the problems into the future instead of dealing with them in the present.

    Politicians are transient so the future is of no importance to them so long as they can have the power now. This is a dangerous addiction that they will do what it takes to hold onto.

    By the time the younger generation see through what is going on and what it means for them in the future the country could become a police state where they are unable to do anything about it. Much like China.

  • Comment number 81.

    Re #52

    Investors, Savers?

    Yes the difference is 'Savers' are protected but 'Investors' are not.

    The Equitable life 'investors' have found this out the hard way, (myself included) even though it was a mutual providing important products such as pensions, so BEWARE if you have money 'saved' in a mutual building society which confers membership rights. Unlike those lucky savers in the Northern Rock and ICESAVE you may not be so protected because in reality you are an investor.

  • Comment number 82.

    A few people have raised a valid point that still require answering. I will try to do my best to oblige.

    In all of this and the vitriol people have vented towards Iceland they should remember that Iceland is a small country with a population similar to Coventry or Bristol or Southampton. We aren't talking about a massive economy or a massive state.

    The gentleman from Iceland (Steini) who raised the point re would Gordon have done the same had it have been an American or French bank raises a very valid point. What would Gordon have done had it have been a subsidiary of an American bank?

    The UK government has acted like a bully and wants to be both judge and jury.

    Once New Labour had stood 100% behind Northern Rock it could do little other than stand 100% behind the Icesave savers and the other institutions that followed despite what the regulations may have stated at the time the accounts were open.

    What we are doing to Iceland is little more than asking them to pay what the UK has paid out irrespective of what the amount that they were due according to the Icelandic scheme was.

    It is fundamentally unfair and I say good luck to Iceland.

  • Comment number 83.

    I would just like to ask the people in the UK who are wondering why the Icelanders are against being responsible for depts that were incurred by some idiots in a UK bank (subsidiaries of the Icelandic banks) this :

    Would you like it if for no fault of yours, all of a sudden your government had to pay a bill of 1.200.000.000.000 Pounds ( that´s 1.2 Trillion Pounds) because of something you had nothing to do with but happened abroad?

    This is the equivalent amount to what Iceland is susposed to pay per capita. Please answer this truthfully, even just to yourself and you will see our point.

  • Comment number 84.

    70 writingsonthe wall

    Even worse when people realise that we haven't enough storage for gas supplies and that North Sea Gas is sold off cheaply to Europe in the summer and we have to buy gas back from abroad at far higher prices in the winter.

    The gap in prices being even wider with the devaluation of sterling.

    Watch our for further rises in gas prices soon.

    This after thirteen years of a labour government. What a farce.

  • Comment number 85.

    77 Friendlycard

    "No wonder Moody's is warning of civil unrest"

    Are they?

    Indeed they are:

    "Britain and other countries with fast-rising government debts must steel themselves for a year in which “social and political cohesiveness” is tested, Moody’s warned... Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a “tumultuous year for sovereign debt issuers”. "

    http://www.telegraph.co.uk/finance/economics/6819470/Moodys-warns-of-social-unrest-as-sovereign-debt-spirals.html

  • Comment number 86.

    Icelanders now know, more than any nation on earth, that when banks run into difficulties, they have to be bailed out by all taxpayers.

    I hate the way you, and so many, keep describing the situation as "bailing out the banks".

    This is simply not true. You are bailing out those who have given money to the banks.

    We are bailing out the mega rich.

    Repeat. We are now saddled with debt for a generation to bail out the mega rich.

    PLEASE report on what has really happened Robert.

    The government should have done a bank bailout that protected all retail (man on the street) deposits and allowed the rest of the banking function to hit the wall.

    This would have caused massive repercussions all around the world, and a massive recession last year. But it would have left us with a government that was solvent, that could have rebuilt from a firm (or at least much firmer) foundation. Within 10 years we would have been miles ahead of where we will now be.


  • Comment number 87.

    Wonder if the Russians or Chineses fancy a naval base in the North Atlantic?

    No doubt they are both in a position to offer favourable terms.

    Just a thought.

  • Comment number 88.

    82. Ian_the_chopper:

    "What we are doing to Iceland is little more than asking them to pay what the UK has paid out irrespective of what the amount that they were due according to the Icelandic scheme was".

    Yes - payouts should have been restricted to the limit of the Icelandic scheme, nothing more. But, once they'd set the Northern Wreck precedent, they were stuck.

  • Comment number 89.

    stabreim wrote:

    "It is important that people understand the difference between deposits, which are not supposed to be speculative, and investments, which are. Some folk, notably Icelanders and Equitable Life investors, try to blur the difference. And if a Government states that the first €20,000 are protected, depositors are entitled to take that at face value."

    I agree with some of what you say. But in both cases HM Treasury and Brown have got it wrong.

    1. Icesave investors should only have been protected by the Icelandic Government (and hence people) up to the limit on the investment guarantee. Brown decided to pay out in full using UK money and then reclaim it - wrong. That means that we relied on the "better nature" of the Icelandic government to pay it back - something that their electorate are understandably unwilling to do. The Icelandic people should only be responsible for the amount held up to the limit, not 100% as imposed by Brown acting for the UK.

    2. Equitable acted in the way it did (applying different bonuses depending on whether policy options were taken up or not - effectivly a penalty for taking a lower risk route) partly because HM Treasury (under Brown's stewardship) agreed that it was an appropriate course of action - if this approval hadn't been given it is unlikely that the course could have been followed despite the arrogance of the Actuaries in charge. When this went to court the Treasury (under Brown's class warfare leadership) walked away and failed to admit it's role and hence responsibility. As Brown agreed that the approach was correct the Treasury and the FSA should have paid out to compensate the people that lost as a result of the failure to regulate properly.

    Both cases are example of NuLab's failure to accept any responsibility, and neither the Icelanders nor the Equitable investors who lost out (to pay for those who demanded both the high return and the low risk) deserve to pay. Take it out of the pensions of the Minister and Civil Servants in the Treasury who were responsible I say!

  • Comment number 90.

    The banks have already turned the argument around in their favour. In reality of course, it was THEIR irresponsible poker-playing that got us all into this mess - but very quickly, their spin-doctors presented the scenario as if it was solely the fault of "irresponsible borrowers", as if a few hundred "Gary and Tracy's" with 125% mortgages had wrecked the whole economy. And they've seized on that theme by greedily charging rip-off interest rates and arrangement fees over the last 18 months. The banks' lies and deceit are almost as nauseating as their current nose-holding, self-righteous, arrogant attitude when you have the temerity to ask for an overdraft. Caledonian Comment

  • Comment number 91.

    Were Alllice [inblunder] land ...er .. snow. Which is what happens when the mad off hatters ruin the show which has to go on and on and on in purrpetual mushon ,just to pay for the sceenerry and props too keep the QEenease of hahAAArt happy.

    What N ME purrfourmans by those crooking the books at gAAAs mark FOOUR the rabbid MA sons who should beek orgi regegisterrred beef awe they row in the nayshuns bottom line with their useless cox and useless oars always doodledoink at the quack of daaawn.

    And thats my view in playn unexburghateable ingrisstle

  • Comment number 92.

    85. ArnoldThePenguin:

    "77 Friendlycard

    "No wonder Moody's is warning of civil unrest"

    Are they?

    Indeed they are:"

    Thanks for the link. Rating downgrade imminent, methinks.........

  • Comment number 93.

    83 Slowbots:

    "I would just like to ask the people in the UK who are wondering why the Icelanders are against being responsible for depts that were incurred by some idiots in a UK bank (subsidiaries of the Icelandic banks) this :

    Would you like it if for no fault of yours, all of a sudden your government had to pay a bill of 1.200.000.000.000 Pounds ( that´s 1.2 Trillion Pounds) because of something you had nothing to do with but happened abroad?"

    uh, correct me if I'm wrong but isn't that exactly what has happened in the UK? Most of the debt owed by our banks is foreign debt that the UK banks bought, thereby becoming liable for US homeowner's defaulting on their mortagages. I don't remember signing up to that.

    Not even all the bankers signed up to that (advisedly): "RBS misled investors over its exposure to bad debts. It was reported that more than £30bn of "toxic" sub-prime mortgages were bought for RBS by traders in 2007 without the board being informed - a claim denied by the bank."

    http://www.thefirstpost.co.uk/46802,business,rbs-executives-claim-they-were-intimidated

    I've yet to hear why these confidence tricksters, sorry, legitimate business men who accidentally lied and defrauded us of trillions, should be supported by our taxes for the next 60 years.

    60 years is not an exageration by the way.

    We only paid off our WWII debts to the US in 2006 - £3.8 bln repaid against a £2.2 bln loan at a very favourable 2% and payments still had to be deferred for six years due to economic/political crises.

  • Comment number 94.

    2. At 10:18am on 07 Jan 2010, Blogpolice wrote:

    "Robert, Maybe we are all angry and we are just awaiting the election to show how angry we are at a Govt which has sold our future for a recless 13 years of spending money the country did not have."

    This actually isn't correct, though it is probably what Murdoch and Cameron would have us believe.

    Before the credit crunch government debt levels in the UK were not especially high compared with those of the nine other richest nations. In fact in some of the 13 years you refer to the UK government paid off more debt than it took on (don't take my word for it, you can get the figures from the IMF and other independent sources).

    The current issue is that UK government debt was widening as we approached the credit crunch and the bank bailout package, reduced income and other factors has seen this gap increase significantly on a year-by-year basis – more than is the case with some of our competitors.

    So, we can question whether the bank bailout was worth it and we should look to whichever government we get to address the debt issue effectively (without killing growth in the process). But in comparative terms it is not right to say the UK government has been profligate for 13 years. It was not only more prudent than most other leading nations it was a good deal more prudent than most UK citizens who built up eye-watering levels of debt by international standards. This was, and is, a significant problem for the UK.

    If the government had taken steps to reign in this individual exuberance (as it ought to have done in my opinion) there would have been an outcry from much the same people that now want to blame it for all the ills the UK is facing. How many times did we hear the government accused nanny-statehood in the last decade? Plenty. If we can't accept more individual responsibility on these issues then we surely deserve to be treated like children.

    Though it is an important and relevant question to ask what kind of banking system we want, it is fanciful to suppose the UK government can deliver this on its own.

    Banking, as should be obvious by now, is an international system. This is why the people of Iceland may be screwed more by voting against the payoff than for it. The system will make them pay, even if the UK and Dutch governments can't.

    The real political failure is not party-based it is global. Banks and businesses have globalized radically. By comparison politics is in the globalization slow lane. We can't even get agreement on a climate change deal which all countries claim to believe is needed. So the idea that governments can effectively manage global finance and global business would seem at best hopeful and more probably laughable. This is a massive issue since, as we've learned, it's governments that end up with the bill... And a sizable share of the blame.

    The problem is that the relationship between reward and responsibility in international banking is totally out of kilter. Iceland will not solve this with a referendum. And we won't solve it by seeing this as simply a party political issue.




  • Comment number 95.

    @ 28. At 11:46am on 07 Jan 2010, Fay fae Fife

    I totally agree with this person! Tax payers are not responsible for the risk private investors take by putting money into private banks. It is absolute madness to think that! What about the people responsible for the money that the councils lost in the Icelandic bank? How on earth can that be the responsibility of Icelandic citizens to pay for a howler these persons did for their own councils? This is an offense and they should be behind bars!

    What will they gain from bullying little Iceland instead of just agreeing to fair deal that will allow Iceland to pay back the money they accepted to pay back in the beginning. The whole world is starting to take stance with Iceland in this matter simply because this is a simple story of "David vs. Goliat" and eventually, history will repeat itself.

    I hope it will be an example to follow that the President of a small island in the Atlantic ocean gave the power to its people to rightfully, make up their minds on such a big thing as Icesave. The amount we are talking about is astronomical to a nation as big as Wigan; peanuts for UK for that matter.

  • Comment number 96.

    91. SpartacusmartyrAAAs


    Woot? Nú skil ég ekki alveg :=)

  • Comment number 97.

    51 Crookwood,

    Thanks for your good posting. Your numbers 2 and 3 are fair enough, but the distinction outlined in your item 1 is the most interesting point.

    A politically directed nationalised bank would indeed be quite ridiculous, and transform us into a Soviet style economy.
    A state run bank though would, theoretically, not suffer from such a temptation to "allocate capital" inefficiently. But this too would have a serious flaw.

    It's costs would rise to highly inefficient levels due to its staff threatening to go on strike. You'd find one of the more aggressive unions (maybe thinking that banking was a similar business to rail, maritime and transport maybe?) would sign up all the staff and threaten strikes continuously when staff were not allowed 5 coffee breaks a day.

    We'd get ripped off again.

    But, why not take this idea and go a bit further. If you're saying that such a state bank would be "owned by all of us with a clear operating mandate", why not split up such a bank into a hundred different smaller ones, but make the owners the people who deposit the money in them? (OK you could some sort of state insurance on top of this).

    Wouldn't that effectively achieve the same result, but with a better chance of each individual bank operating efficiently?

    Yes, this is indeed the "mutual model", but doesn't it deliver the objective we all want - to have the money system controlled by us, the people?

    We could alter the law so that any organisation that is permitted a banking License and is therefore able to call itself a 'Bank', would give it's ownership to those who deposit money there (OK, and maybe those who borrow from it too). We could ban any such organisation from itself doing any proprietary trading. We could ban it from giving any merger/acquisition advice. We could (as the IMF economist was suggesting on the Today prog recently) limit the size of such a bank to £50bn, say, of assets.

    Is this not better than just one monolithic independent state bank?



  • Comment number 98.

    78. At 2:43pm on 07 Jan 2010, Thorman wrote:

    "Iceland is not running away from its obligations. "

    ...and why not?

    The CEO's of banks walked away from their obligations, your prime minister has walked away from his (i.e. making the decision about the payment)

    It's all the rage these days - I'm thinking about walking away from some obligations as we speak.

    It's not a case of Icelanders walking away from their debts - mainly because they are not their debts

    The people who's debts they are have already walked away - you were the ones left holding the bag when the music stopped.

    Don't worry, soon the Greeks, half of Eastern Europe, some parts of the Middle East and possibly the UK and US will also be walking away from their obligations - so you'll be in good company.

  • Comment number 99.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 100.

    I think it is helpful here to distinguish between formal responsibility one the one hand and moral responsibility on the other.

    Formal responsibility is governed by existing rules and regulations. There cannot in my mind be any question that formal responsibility lies with the Icelandic government - it is bound by EU/EEA legislation and longstanding international practice to refund the first 20,880 euros per account to IceSave depositors.

    Moral responsibility - and the question of fairness - is a completely different matter, but I think that is a debate that should be saved for later. Iceland could argue, once payments start coming due in 2016, that British and Dutch authorities perhaps bear more responsibility than they are now admitting and therefore it could request rescheduling and/or partial debt relief. This, I believe, would be more than forthcoming once the political storm surrounding this matter has settled. This is less a matter of money (the amounts in question are small for the UK and the Netherlands) than principle.

    It is the principle, i.e. the perceived attempt on the part of Iceland - through the conditions attached to the first bill guaranteeing the deposits and the President's veto of the second bill - to evade formal responsibility for the matter, which justifiable angers the British and Dutch governments.

 

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