Icelandic Anger Bringing Record Debt Relief In Best Crisis Recovery Story

[Asheron]

Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

“You could safely say that Iceland holds the world record in household debt relief,” said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.

Crisis Lessons

“The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,” said Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, in an interview. “It’s the broadest agreement that’s been undertaken.”

Without the relief, homeowners would have buckled under the weight of their loans after the ratio of debt to incomes surged to 240 percent in 2008, Matthiasson said.

Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.

Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”

People Vs Markets

Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.

Once it became clear back in October 2008 that the island’s banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.

Activists say the banks should go even further in their debt relief. Andrea J. Olafsdottir, chairman of the Icelandic Homes Coalition, said she doubts the numbers provided by the banks are reliable.

“There are indications that some of the financial institutions in question haven’t lost a penny with the measures that they’ve undertaken,” she said.

Fresh Demands

According to Kristjan Kristjansson, a spokesman for Landsbankinn hf, the amount written off by the banks is probably larger than the 196.4 billion kronur ($1.6 billion) that the Financial Services Association estimates, since that figure only includes debt relief required by the courts or the government.

“There are still a lot of people facing difficulties; at the same time there are a lot of people doing fine,” Kristjansson said. “It’s nearly impossible to say when enough is enough; alongside every measure that is taken, there are fresh demands for further action.”

As a precursor to the global Occupy Wall Street movement and austerity protests across Europe, Icelanders took to the streets after the economic collapse in 2008. Protests escalated in early 2009, forcing police to use teargas to disperse crowds throwing rocks at parliament and the offices of then Prime Minister Geir Haarde. Parliament is still deciding whether to press ahead with an indictment that was brought against him in September 2009 for his role in the crisis.

A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown.

Legal Aftermath

Iceland’s special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.

Larus Welding, the former CEO of Glitnir Bank hf, once Iceland’s second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.

That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.

The U.S. subprime crisis sent home prices plunging 33 percent from a 2006 peak. While households there don’t face the same degree of debt relief as that pushed through in Iceland, President Barack Obama this month proposed plans to expand loan modifications, including some principal reductions.

According to Christensen at Danske Bank, “the bottom line is that if households are insolvent, then the banks just have to go along with it, regardless of the interests of the banks.”

http://www.bloomberg.com/news/2012-02-20/icelandic-anger-brings-record-debt-relief-in-best-crisis-recovery-story.html

Edited February 20, 2012 by Asheron

[Democorruptcy]

hadpuritin tother fred

http://www.housepricecrash.co.uk/forum/index.php?showtopic=175404

[SHERWICK]

Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country's economic and financial collapse are reaping the benefits of their anger.

Since the end of 2008, the island's banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

"You could safely say that Iceland holds the world record in household debt relief," said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. "Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that."

The island's steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland's economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don't want to join the European Union, where the debt crisis is in its third year.

The island's households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.

Crisis Lessons

"The lesson to be learned from Iceland's crisis is that if other countries think it's necessary to write down debts, they should look at how successful the 110 percent agreement was here," said Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, in an interview. "It's the broadest agreement that's been undertaken."

Without the relief, homeowners would have buckled under the weight of their loans after the ratio of debt to incomes surged to 240 percent in 2008, Matthiasson said.

Iceland's $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.

Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island's "unorthodox crisis policy response has succeeded."

People Vs Markets

Iceland's approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn.

Once it became clear back in October 2008 that the island's banks were beyond saving, the government stepped in, ring-fenced the domestic accounts, and left international creditors in the lurch. The central bank imposed capital controls to halt the ensuing sell-off of the krona and new state-controlled banks were created from the remnants of the lenders that failed.

Activists say the banks should go even further in their debt relief. Andrea J. Olafsdottir, chairman of the Icelandic Homes Coalition, said she doubts the numbers provided by the banks are reliable.

"There are indications that some of the financial institutions in question haven't lost a penny with the measures that they've undertaken," she said.

Fresh Demands

According to Kristjan Kristjansson, a spokesman for Landsbankinn hf, the amount written off by the banks is probably larger than the 196.4 billion kronur ($1.6 billion) that the Financial Services Association estimates, since that figure only includes debt relief required by the courts or the government.

"There are still a lot of people facing difficulties; at the same time there are a lot of people doing fine," Kristjansson said. "It's nearly impossible to say when enough is enough; alongside every measure that is taken, there are fresh demands for further action."

As a precursor to the global Occupy Wall Street movement and austerity protests across Europe, Icelanders took to the streets after the economic collapse in 2008. Protests escalated in early 2009, forcing police to use teargas to disperse crowds throwing rocks at parliament and the offices of then Prime Minister Geir Haarde. Parliament is still deciding whether to press ahead with an indictment that was brought against him in September 2009 for his role in the crisis.

A new coalition, led by Social Democrat Prime Minister Johanna Sigurdardottir, was voted into office in early 2009. The authorities are now investigating most of the main protagonists of the banking meltdown.

Legal Aftermath

Iceland's special prosecutor has said it may indict as many as 90 people, while more than 200, including the former chief executives at the three biggest banks, face criminal charges.

Larus Welding, the former CEO of Glitnir Bank hf, once Iceland's second biggest, was indicted in December for granting illegal loans and is now waiting to stand trial. The former CEO of Landsbanki Islands hf, Sigurjon Arnason, has endured stints of solitary confinement as his criminal investigation continues.

That compares with the U.S., where no top bank executives have faced criminal prosecution for their roles in the subprime mortgage meltdown. The Securities and Exchange Commission said last year it had sanctioned 39 senior officers for conduct related to the housing market meltdown.

The U.S. subprime crisis sent home prices plunging 33 percent from a 2006 peak. While households there don't face the same degree of debt relief as that pushed through in Iceland, President Barack Obama this month proposed plans to expand loan modifications, including some principal reductions.

According to Christensen at Danske Bank, "the bottom line is that if households are insolvent, then the banks just have to go along with it, regardless of the interests of the banks."

http://www.bloomberg...very-story.html

Hmmmmmm, no mention whatsoever of the massive help Iceland got from Norway.

I wonder why?

It's a miracle I tell ye!

[Bloo Loo]

Hmmmmmm, no mention whatsoever of the massive help Iceland got from Norway.

I wonder why?

It's a miracle I tell ye!

and little emphasis on that driver of all economies, housing is within 3 points of pre crash levels.

[sims]

So for how many years will they have to grow at this rate until they are back where they started?

[Bloo Loo]

So for how many years will they have to grow at this rate until they are back where they started?

I hope they never get back there.

and so do they.

[sims]

I hope they never get back there.

and so do they.

In GDP terms.. It's easy to have a reasonably high GDP growth rate after a 40% drop.

[Bloo Loo]

In GDP terms.. It's easy to have a reasonably high GDP growth rate after a 40% drop.

they should drop GDP.

so should we all.

Its a measure easily corrupted by banks.

[vlad the impaler]

Wow, what an amazing recovery story - just goes to show what is possible if only.......oh, hang on......

when its banks defaulted on $85 billion

More recently, Iceland’s default and devaluation provides a textbook example of “default therapy”… or what Nobel laureate, Paul Krugman, termed “bankrupting yourself to recovery.” In late 2008, Iceland’s economy hit an iceberg. Although the country never reneged on any sovereign debt, its banks defaulted on $85 billion of foreign debt — more than double the $40 billion Russia defaulted on in 1998.

Not surprisingly, the Icelandic krona collapsed and the economy plunged into a deep recession. Icelanders suffered an 18 percent slump in their disposable incomes and unemployment approached 10 percent, compared with one percent before the crisis.

But the country’s pain and suffering did not last very long.

The krona’s 80 percent slump against the euro and the US dollar sent the trade deficit into surplus within months. Today, the Icelandic economy is growing once again and the country is already able to borrow money again from the international capital markets.

http://articles.businessinsider.com/2012-02-16/markets/31065586_1_austerity-greek-economy-greek-parliament/2

Clearly we never, ever, learn do we?

Edited February 20, 2012 by vlad the impaler

[erranta]

Wow, what an amazing recovery story - just goes to show what is possible if only.......oh, hang on......

Clearly we never, ever, learn do we?

They were independent banks operating in Iceland - not Icelandic State owned banks.

The corrupt banking directors stole all the money and lost the rest thru fraud

- it was not the Icelandic people, who quite rightly told greedy gamblers after an impossibly high interest rate to go to hell.

Edited February 20, 2012 by erranta

[OnionTerror]

Apparently the Icelandic Prison is at capacity, so they could be "let off" with community sanctions, or some such...I can the imagine Wail clawing at the bit...

http://grapevine.is/Features/ReadArticle/DoingTimeInIceland

Given that the comedian Doug Stanhope has a gig at Iceland’s maximum-security prison at the end of September, we figured we would give you the low down—or something short of that—on Iceland’s prison system.

For starters, there are six facilities, which house an average of 137 convicts per day, according to data provided by the Prison Administration. That’s a prison population of about 43 per 100.000 inhabitants, which is a fairly small number compared to the United States' whopping 756 prisoners per 100.000 inhabitants. Most of them are there for drug-related charges, followed by embezzlement and forgery, violent crimes, sex offences, and traffic law violations.

Prisoners spend their days working, making for instance, tic tac toe games, benches, boxes, license plates and cement blocks (which are available for purchase at fangelsi.is), or attending school, which they can do in lieu of work. Prison and Probation Administration representative Hafdís Guðmundsdóttir says compensation varies significantly, but the average prisoner is making 28.000 ISK/month.

With this money they are expected to buy their own groceries and personal items. The iconic image of prisoners eating cafeteria-style meals together in a big dining hall is far from the reality in Iceland where prisoners cook their own meals, with the exception of Hegningarhúsið (on Skólavörðustígur in 101 Reykjavík), which lacks facilities.

Four star hotels

Though they’re not as luxurious as Norway’s Halden prison, which boasts a rock climbing gym, Iceland’s prisons have a reputation for being rather comfortable. As Hosmany Ramos said after his famous one-minute escape last year, “I’m not in prison here. This is like a four star hotel. I’ve never seen anything like it.” Granted, he was used to sharing a similar size cell with 30 to 40 prisoners in Brazil.

In Iceland, prisoners are given their own cell and are permitted to bring with them items like a radio, a CD player and speakers, a flat screen TV up to 26” or a tube TV up to 21,” a personal computer with a 23” flat screen, keyboard, printer, mouse and speakers, 150 CDs and DVDS with see-through cases, reading and writing material, and games. Furnished cells look very much like dorm rooms (though they are leagues above the rooms at UCLA, for instance, where nearly all freshman bunk up with at least one roommate in half the space).

After prisoners have fulfilled one third of their sentence, they can apply for leave from the prison as frequently as once per month to spend a day with family and friends or short-term leave to visit an ill relative, attend a funeral of a close relative, attend the birth, baptism or confirmation of his or her child, and “attend to particularly urgent personal interests.”

While this did not allow MP Árni Johnsen—who served two years at Kvíabryggja for buying linoleum (and other stuff) on the State’s dime for personal use—to go sing and play guitar at the Þjóðhátíð festival in Vestmannaeyjar, he didn’t seem to have it too rough. During his time there, he reportedly made 40 large-scale rock sculptures, wrote five books on various topics, and as bloggers remarked, “changed the prison into a multiple star hotel” by getting The Red Cross to buy the inmates new beds, which he personally picked out. At the time, Fréttablaðið reported that the same beds were being used at KEA, Hótel Loftleiðir, Hótel Saga and Hótel Ísland.

Soon after Árni was released, DV reported that he went on a vacation to the Caribbean with Kvíabryggja’s Head Prison Chief Geirmundur Vilhjálmsson, who is now ironically under investigation for embezzling prison funds to buy his personal groceries (among other things). Purchases rang up for 3,5 million ISK in the first ten months of 2010 compared to 1,4 million in 2009, and included “luxury” items like “chicken fillets, rainbow trout, candy and soda,” which “aren’t served in the prisons,” according to the story that appeared in Fréttablaðið.

Shortly after Geirmundur was put on leave in November 2010 (and given half pay), Fréttablaðið reported that officials found motorbikes, a four-wheeler and a few cars at Kvíabryggja, which also did not belong at the prison, explaining the prison’s purchases of spare car parts including 79 light bulbs, car enamel, and fuel for 750.000 ISK.

Of course, as a low-security facility, Kvíabryggja grants prisoners more freedom than the other prisons and so it is generally reserved for the trustworthiest of convicts. Interestingly, it came to light that prisoners there are allowed free use of their cell phones between 8:00 and 23:00 when an accused rapist allegedly phoned his victim, according to an mbl.is story, “Murderer and rapist serving time at Kvíabryggja”.

Sorry, no vacancy

Not that people are vying for a nice room at Iceland’s “luxurious” prisons, Hafdís says there are 350 convicted criminals waiting to serve their term on any given day. Typically she says the convicted have to wait from one day to four to five years to begin serving their time.

This problem of overcrowding is by no means new news. Plans to build a prison in the capital city have been in the works for nearly fifty years and police in downtown Reykjavík have been waiting for a new temporary detention centre for the last fourteen years, according to a RÚV report.

Because Hegningarhúsið, the temporary detention centre at Skólavörðustígur, only has room for sixteen, police have to send prisoners long distances. A police report from the year 2000 estimated that the city spent at least an additional 10 to 15 million ISK per year on transporting prisoners between the city and Litla Hraun, which is located 61 kilometres outside of Reykjavík.

Now there are serious plans to build a new prison at Hólmsheiði with room for an additional 56 prisoners (we’ve heard that before), but the project is tied up because government officials cannot agree on whether the project should be financed by the State or a private party.

So Doug Stanhope’s fans should be advised that if they commit a crime to get into his show at Litla Hraun—claiming the ‘Stanhope defence’—there’s a good chance that they will still miss it by four or five years. While Litla Hraun’s prisoners and a few lucky visitors enjoy his gig, the rest of us law abiding citizens who pay rent in town will just have to catch Doug elsewhere.

---

Iceland’s Prisons

1. Hegningarhúsið, Iceland’s oldest prison, opened in 1874, holds 16 prisoners. This prison is located on Skólavörðustígur in downtown Reykjavík.

2. Litla-Hraun, maximum-security detention centre, opened in 1929, holds 87 prisoners.

3. Kópavogsbraut 17, opened in 1989, holds 12 prisoners. This is the women’s prison, but as there have only been a maximum of eight women serving at the same time, men are also housed here.

4. Kvíabryggja, opened in 1963, holds 22 prisoners. This is a low security prison for the most trustworthy of convicts, those who have committed white collar crimes.

5. Akureyri, opened in 2008, holds 10 prisoners.

6. Bitra, opened in 2010, holds 18 prisoners.

---

Top Five Reasons People Are Doing Time

1. Drug-related offence

2. Embezzlement/forgery

3. Sexual offense

4. Violent crime

5. Traffic law violation

[Fishman]

Yes, but they still owe the UK Gov't around £3.5b and the Dutch €2b

Growth is easy if you don't pay your debts................

[mdman]

Yes, but they still owe the UK Gov't around £3.5b and the Dutch €2b

Growth is easy if you don't pay your debts................

Who are they? The Icelandic people or the private bankers?

The World is hooked on debt-fuelled growth. Those who don't pay their debts don't get new loans.

[gadget]

Yes, but they still owe the UK Gov't around £3.5b and the Dutch €2b

Growth is easy if you don't pay your debts................

Really? Mr and Mrs Bjorkson of Rejkavik borrowed £3bn? Who was crazy enough to lend them that!?

Oh you mean the icelandic banks borrowed the money. So why should Mr and Mrs Bjorkson pay it back?

PS As an aside. The bankrupt icelandic banks are actually paying back all their foriegn debts (that for some reason the UK and Dutch governement took on) through the disposal of their foreign assets. Currently it's looking like most of the debt will be repaid

[Peter Hun]

In GDP terms.. It's easy to have a reasonably high GDP growth rate after a 40% drop.

The capital controls hide another 50% drop in the GDP by showing a fake exchange rate. That will have to happen sometime in the future.

They were independent banks operating in Iceland - not Icelandic State owned banks.

The corrupt banking directors stole all the money and lost the rest thru fraud

- it was not the Icelandic people, who quite rightly told greedy gamblers after an impossibly high interest rate to go to hell.

The Icelandic government gave the banks to their friends, who returned the favour with bribes. The banks were quasi-governmental institutions.

The banks inturn employed a very large part of the icelandic population and paid most of its tax income.

The entire Icelandic population befitted greatly from these 'private' banks.

Edited February 21, 2012 by Peter Hun