Wednesday, December 8, 2010

I did it my way…

Iceland exits recession

Last year Iceland's president Olafur R Grímsson said: "The difference is that in Iceland we allowed the banks to fail. These were private banks and we didn't pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks."

Posted by sibley's b'stard child @ 09:30 AM (1838 views)
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12 thoughts on “I did it my way…

  • The Navy should have made a better job of the cod wars in the early seventies and invaded the mainland.

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  • Isn’t the smell of freedom wonderful.

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  • The press used to be full of comments to the effect that Iceland would take decades to recover. They had the same knowledge (they knew that Iceland had already let the banks fail) when they made those claims and there were no dissenting voices. It actually took them only 2 years to recover and they are now bustling with optimism. Our recession ended a year earlier but we supported our banks, which gives us an advantage over Iceland going forward. I say this because our biggest banks are now well capitalised and they will be able to continue employing people and contributing to the tax base for the foreseeable future. Iceland was far too small to have such a big banking sector, so they definitely did the right thing by letting their banks fail. Ireland should also have let their banks fail but I sense they are terrified of returning to relative poverty and they are clinging on to their Celtic Tiger memories, at any cost.

    On a point of order, Ireland has actually given some junior bondholders a 20% haircut. They couldn’t give the senior bondholders the same haircut because many of them are higher up the chain than bank deposits

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  • In economic terms, the two plus years Iceland have had since their crisis is a considerable length of time. I am fairly certain that by the first quarter 2013 Ireland will be growing at more than 1.2%.

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  • rantnrave: I’m absolutely sure you’re right. The world economy is set to start growing (in your stated timeframe) at a fair old pace and almost everyone will be dragged along with it. There is no one size fits all tactic

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  • iceland house prices have fallen 50%+though with litttle or no chance of recovery

    That’s what will happen here…….eventually

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  • Flashman I’ve tried, unsuccessfully, to discover the difference between junior and senior bondholders. What defines one or the other? Big difference now of course, with one safe as “houses” (just an expression) the other trembling in their boots.

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  • 2. flashman said…Our recession ended a year earlier but we supported our banks, which gives us an advantage over Iceland going forward.

    Have you considered going into financial comedy flash. Made me laugh!

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  • nomad: You might have more luck if you do a google search using the official name for junior bonds, which is “subordinated bonds”.
    It just a matter of who gets paid first in the event of liquidation. Just like with a Ltd company there is a hierarchy of creditors in the case of a bankrupcy. The coupon on subordinated bonds is higher because the risk of receiving a haircut or not getting paid at all, is higher. The buyers of these bonds should not moan too much because they opted for a higher coupon in the first place. The first in line to be paid in the event of a bankruptcy of haircut is always the holders of senior bonds (except for the government who always gets its taxes before even the senior bondholders). Sometimes senior bondholders are in front of deposit holders depending on the terms of the senior bond. It is often inferred that these senior bondholders have used their influence to make sure they get paid first but that is not really fair. They accepted a low coupon to insure that they were at the head of the queue.

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  • mark wadsworth says:

    Yay for Iceland! That’s what ‘national sovereignty’ is all about. It is more or less a foregone conclusion that they will come out of this in much better shape than Ireland. Plus, their currency has fallen, house prices are down, fish prices are up, what can possibly go wrong? This is a text book case that will (hopefully) always merit an extra chapter in future history books on the 2008 ‘financial crisis’.

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  • Flashman @ 7. Thankyou.

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  • Anti-shopping Unit says:

    Didn’t we bail out the Icelandic banks by guaranteeing all the money in Kaupthing and Icesave?
    Now they are out recession they can pay us back!

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