Today we went to our Kaupthing branch for the last time.
Not because we are able to take our finances elsewhere as people in real economies do, nor because they were making us bankrupt because we aren’t. And it wasn’t because they had an offer for us after we have paid almost 4 million in three years onto a 16.7 million mortgage which is now at 19.8 million.
No, the reason we were there was to reject our participation in the “government solution” towards household debt and the reason it is the last time is that they are changing the name of the bank and announcing the new one later tonight(Nordis, Arion amongst the favorites). Someone is going to change the signs and the letterheads and everyone is supposed to pretend they are banking with a new bank which is “looking towards the future, not concerning itself with the ugly past”.
Related posts:
- The Icelandic Household Debt Dilemma And The Government’s Useless Permanent Poverty Solution
- Three branches of government, controlled by one
- Will there be a fair solution?
- A Fair Solution Or Not?
- Foreign Creditors Take Over Arion/Kaupthing – We Who Are Supposed To Pay Everything Have The Right To Know Everything
Blubber
2 years ago
May I ask why you are opting out of the “solution”?
Because I’d like a good reason to opt out.
Inger Le Gué
2 years ago
May I ask what the government solution is? I only read Icelandic news translated in English (IcelandReview, IceNews, your website etcetera) and apparantly missed it.
Alexander E.
2 years ago
Inger Le Gué.
You can read government and banks web sites – use Google to translate from Icelandic to any other language. It’s not perfect but good enough.
And “Hurrrrray” – we have a new bank now – Arion!
Carl Mosconi
2 years ago
Wow, hope you reconsider Blubber about the opting out thing. If you don’t, read the negatives involved in the letter you received from the bank.
Myself and a number of my relatives (100%) opted out and my progenies and I are of average intelligence. This might not fit your situation but our opting out certainly suits us just fine.
Dadi
2 years ago
Inger, I will try to explain the government “solution” sometime this weekend when I have time.
Blubber
2 years ago
CM: Right, I get the negatives listed in the letter, but, would like a more in depth analysis.
(But, for argument’s sake lets just say that I’m taking a calculated risk by not opting out).
Iri
2 years ago
So you’ve paid almost 4 million in three years onto a 16.7 million mortgage, and now it is 19.8 million. I just can’t get my head around that!! Ouch! How this ridiculous price-index system remains in place totally bewilders me – its crazy.
Bromley86
2 years ago
Not entirely ridiculous Iri.
I don’t know Dadi’s situation, but my (limited) understanding of Icelandic mortgages is that the interest rate attached to them is far less than it would be without the indexation.
So, if inflation in the UK was 10%, you might reasonably expect mortgages to be 12-13%. In Iceland they were (again, please correct me here if I’m wrong) closer to 5%.
Not that I like the idea of indexation, but it does always seem to be unfairly put forward as a terrible evil.
Vilhjalm A.
2 years ago
In normal countries there is an element of risk for both the borrower and lender. The lender can borrow at, for instance, 1% from a central bank and lend out at 4-5% to consumers — the lender makes a decent return of several %, but there is always a chance that inflation will go to above 5% and wipe out this profit. In the case of ARMs (adjustable rate mortgages tied to inflation) the lender is guaranteed a profit but a much smaller one (unless the lender defaults – always a possibility in most countries).
In Iceland the risk is entirely removed for the lender. The lender always collects his profit, and not just 1-2% (as in ARMs) but the full amount of 4-5%! Plus, since mortgages are non-recourse and there is no chance of real personal bankruptcy or bankruptcy court loan modifications (ie cramdowns), the lender in Iceland NEVER loses money (unless the borrower leaves Iceland forever or dies completely broke). This is obviously terribly unfair.
Furthermore, in normal countries this bargaining between lenders and borrowers over mortgage rates serves to keep inflation in check. If inflation goes to an unreasonable level (say 7%) the individual banks will collectively put pressure on the central bank to take steps that reduce inflation (such as cutting back the money supply). In Iceland there is no incentive for the individual banks or the central bank to reduce inflation, and so as we have seen, inflation continues out of control.
And what is worse, the “inflation” that is used to measure mortgages rates is measured by price inflation, not wage inflation.
The Icelandic system can only work in “boom times”, when there is price appreciation for houses and wage increases driven by economic growth and low unemployment. But now Iceland has housing-price depreciation (with a huge surplus of housing), stagnant wages, increasing unemployment, negative growth, and price inflation (due to the collapsed ISK) — a toxic stew for anyone who has a home mortgage.
The Icelandic government has various options to help its citizens: make all home loans recourse (the “give back the keys” solution), write-down mortgages to fair market value, implement a Zingales-type potential profit for debt swap, write-down eg 20% of mortgages or for those in financial trouble, change the bankruptcy laws to allow cramdowns or wipe out unpayable debt, eliminate indexing. At the very least the government should change price-indexation to wage-indexation. Instead, the government does nothing. All they offer is a delay in repayment, in the hope that a miracle will occur and the situation will improve in the future.
Bromley86
2 years ago
As always, thanks Vilhjalm. Very informative.