The minister of social affairs now wants to write off car loans which are overextended down to 110% of the market value of the car.
A big relief for those who have seen their loans double, but a major folly.
Yesterday I heard a Social Democrat explain how the Independence Party majority in Reykjavik’s city council was sitting pretty having adopted a Social Democratic hue.
It is outrageous to think that the Social Democrats are turning the same trick in government and playing Independence Party ball. Instead of erecting that fortress around Icelandic households and tackling the debts which are plaguing those who were financially responsible before the crash, the government and the banks have wasted no energy in saving those who loaded themselves with debt, and took those riskier currency loans instead of loans in ISK.
So who were able to get 90-110% loans in the preceding years? Who were avidly speculating in currency loans? Could that group be mostly comprised of bankers and business owners? Those who had higher wages which now have maybe been halved or more.
Consider the cases of these fictional Icelanders:
A) Who took a 100% currency loan on a 30 million ISK home and has seen it go up to 60 million ISK. Market value today estimated at 25 million. Ends up with 27.5 million after the banks and the minister of social affairs have had their say.
B) Who saved 10 million, bought a 30 million ISK home and has seen the 20 million loan go up to 24 million. Market value today estimated at 25 million. No write offs!
Rewarding the risk takers? From which end of the spectrum is Arni Pall Arnason and the Social Democrats approaching the debt issue?
This is especially interesting following the revelations that the new banks got the loans transferred from the old banks at a 31-47% discount.
And then the Gylfi Magnusson, minister of economic affairs has said that the banks are unable to write off loans for average customers because they have to write off such huge amounts for businesses. Others say that that is not true, those were left in the old banks. Which is it? We don’t know because there is extreme breakdown of communication from the government to its people.
So the government which was going to erect a fortress appears to be building a future on building new banks on the backs of average customers and writing off loans for those who took the highest risks
This is all the more galling since there has been an array of advice from world class economists like Stiglitz, Zingales and others available to the government. But maybe the 110% folly is just preferable for some reason? Maybe Icelandic politicians have not been trained to look outside themselves and their own ranks for solutions.
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March 16th, 2010 → 9:52 am @ Dadi
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