Thursday, March 27, 2008

As Iceland goes, so go the Baltics, the Balkans, Hungary, Turkey, and perhaps South Africa

Iceland contagion may spread far and wide

"There's now a risk of psychological contagion from Iceland. People are starting to look more closely at all these countries. The deficits were easy to fund in times of abundant liquidity, but we think the global credit crunch is going to make it a lot harder," he said. "The history of financial crises suggests that it can be dangerous to think 'it's different this time'."

Posted by sold 2 rent 1 @ 08:44 AM (1809 views)
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24 thoughts on “As Iceland goes, so go the Baltics, the Balkans, Hungary, Turkey, and perhaps South Africa

  • Scurillous.. British press has been remour mongering for weeks. What are the facts..give a dog a bad name.
    Trying to scare UK savers to bring their billions back to blighty where its needed?! Hard for UK to compete when banks use the BOE rate
    to short change savers when lipor is near 6%. Nice try!

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  • Yet again, this article is proclaiming that Iceland is a risk right now but gives no facts or figures to substantiate it.

    The only part of the article which actually talks about Iceland’s banks is the following:

    “The country’s all-conquering banks – led by Kaupthing, Glitnir, and Landsbanki – have pushed the asset base of the Icelandic banking system to a world record of eight times GDP”

    which actually contradicts the title of the article (lots of assets in a credit crunch is a good thing!) and the picture trying to imply the country is on thin ice (Iceland, thin ice, geddit?). But there’s NOTHING to back it up.

    Is this just a weak attempt to generate uncertainty in savers’ minds and encourage people to bring their savings back to the UK? It certainly looks like it.

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  • Yes I agree Paul.
    Scurillous media… British press has been rumour mongering for weeks. What are the facts..give a dog a bad name.
    Trying to scare UK savers to bring their billions back to blighty where its needed?! Hard for UK to compete when banks use the BOE rate
    to short change savers when lipor is near 6%. Nice try!

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  • iceland doesen’t have any cdo exposure just cash
    that’s better than the uk by miles

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  • We should always chase the highest savings rates, if only to force the greedy, complacent UK banks into raising their rates for savers.

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  • CIA World Fact Book accessible from HPC resources page

    2. seanb303 said…
    iceland doesen’t have any cdo exposure just cash – not according to the CIA

    that’s better than the uk by miles – er yes OK better than UK

    Rank Order – Current account balances

    136 Iceland $ -3,384,000,000 2007 est.

    162 United Kingdom $ -111,000,000,000 2007 est.

    to be fair these are only estimates has Iceland made great progress then?

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html

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  • > his article is proclaiming that Iceland is a risk right now but gives no facts or figures to substantiate it

    did you read the article?

    “The spreads on Icelandic bank debt have risen above 800 basis points, near levels seen in Bear Stearns’ debt before the Federal Reserve’s rescue.”

    Someone on HPC posted some information about Kaupthing the other day, it looks to be in a very bad place at the moment plus you probably wouldn’t get your money back… well not in pounds sterling, if it went belly up.

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  • looks like we could runs on these banks as this gets around the public domain….

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  • Invest in Icesave if you feel brave, but I’m not at all sure that the UK government will compensate you if it goes down.

    It may have UK offices, and take deposits in sterling, but it is still, essentially, a foreign bank.

    The government got enough flak over Northern Rock – if a foreign bank goes down they won’t be rushing to bail it out!

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  • They have only upped their asset bases by massive borrowing on the international markets. Now that confidence in the Icelandic banks has been shaken, their cost of borrowing is going through the roof. Like house prices in this country, the Icelandic/Baltic “economic miracle” has been pumped up by cheap and easy credit which is no longer available.

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  • UT, its still covered by the FSA compensation scheme – so no more or less safe than any other UK bank.

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  • sold 2 rent 1 says:

    This information war is turning out to be extremely complex.

    Articles like this could spark a currency crisis – a self fullfilling prophecy.
    To be fair Ambrose has warned of this currency crisis for 12-18 months now

    There are lots of unsustainable practices that can and probably will unravel and lightening speed.

    My advice – spread your risks.

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  • Looks like the Torygraph have got the daggers out for Iceland, it certainly looks like a sustained atack; maybe there are some vested interests that are pissed with the fact that 150 000 British Investors have put money there?

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  • Cheekie Charlie says:

    “Paul said UT, its still covered by the FSA compensation scheme”
    You need to read the small print on this one! Icesave is covered by the passport scheme where the FSCS will only cover the shortfall from the banks own country’s compensation scheme! So you will have to chase the bulk of the compensation yourself! However kaupthing are wholly a member of the FSCS so the UK government will protect the first £35K. However the credit default swap on Kaupthing is worse than Bear stearns was just before it went under.

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  • Paul yes it’s covered by the FSA compensation scheme, but it could take up to 6 months from the time your claim under the scheme has been assessed as valid.

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  • theboltonfury says:

    S2r – haven’t we essentially been in an information war since the beginning of time. Don’t the plebs always want to know what’s going on and this is nothing different?

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  • Have you seen the comments after the article. There is a link to a film on youtube about the carry trade from Japan to Iceland. I know it was shown on Al-Jazeera but I found it interesting. Usual story – money borrowed cheap in Japan and invested in Iceland for a good return. Iceland has ‘spent’ the money by investing eg in commercial property and businesses in UK. Upshot is – very great risk as carry trade unwinds.

    I personally think I’ll give Icelandic banks a miss.

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  • sold 2 rent 1 says:

    theboltonfury,

    “S2r – haven’t we essentially been in an information war since the beginning of time. Don’t the plebs always want to know what’s going on and this is nothing different?”

    True. But there is one thing that is fundamentally different now. The internet. Information can be easily shared by the masses. The controlling authorities will put up a fight but they no longer have the upper hand.

    The Calleman/Lungold model says by the autumn the world will be a different place as the exposure of the corruption at all levels in the power structure will be unravelled. Can’t wait.

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  • happyrenterz says:

    I have relatives in South Africa. Their housing bubble is about the same as UK’s, i.e. a bubble ready to crash. The current account deficit was blamed on “infrastructure investment” but the rolling power cuts now being experienced make you wonder what that infrastructure was. Most likely new stadiums for the 2010 World Cup.

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  • Quote from Paul (Re. Icesave) “UT, its still covered by the FSA compensation scheme – so no more or less safe than any other UK bank.”

    – Are you sure?

    The scheme (as I understand it) only covers UK authorised banks – the latest list is here:

    http://www.fsa.gov.uk/pubs/list_banks/2008/feb08.pdf

    I don’t see either Icesave or Landsbanki on the list…

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  • A bit more digging..

    Landsbanki is listed as a bank that is “entitled” to operate, but is not listed as one that is “authorised”

    If I had savings with Icesave, I’d want it in writing from the FSA that they are part of the scheme!

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  • ut @ 24
    I seem to remember reading somewhere that Icelandic compensation scheme is different from our FSA – only up to £16K. As they are ‘entitled’, I think you can only get £19k from FSA and you would have to chase the £16k from Iceland. Anybody know more on this?

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  • I wonder who is underwriting the Icelandic scheme? – if Landsbanki went down, Iceland would be effectively bankrupt

    Also, does it apply to foreign investors?

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