With a smug grin he revealed last night and today what he had wanted all along. It wasn’t a national referendum on IceSave. It was for the government he opposes to resign.
Steingrimur J. Sigfusson asked the nation how it thought an agreement could be made with a saboteur on our very own negotiating team.
Of course Sigmundur David Gunnlaugsson, chairman of the Progressive Party and founder of the InDefence pressure group would never have dreamt up a more favorable situation. Half of the nation had bought his spin and handed him the spin necessary to demand a clear path to the power tables. Preferably before the congressional report on the economic crash due out soon.
I hate to say I told you so, but I did and Icelanders were played by a snake oil salesman and too many of them bought it. He has divided the nation and now humbly offers to lead it from distress.
The enemy does not have Iceland’s interests at heart. It is all about the money (did we mention how he became a billionaire through an unholy alliance of politics and business) and the mandate to lead Iceland during these turmoilous times when the wealth and debts of the nation are distributed.
Iceland’s enemy number one has revealed himself and his name is Sigmundur David Gunnlaugsson.
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Chris Cook
1 year ago
As Michael Hudson puts it….if debt cannot be paid, then it will not be paid. Nassim ‘Black Swan’ Taleb and Willem Buiter both suggest that the solution must therefore lie with equity.
I agree, but not equity as we know it.
My background is in market regulation and development, including six years as a director of a global energy exchange. With a little seed funding from the Norwegian government I’ve developed new and non-toxic partnership-based mechanisms for credit and investment: the Guarantee Society and the Capital Partnership. These are getting a lot of interest from Ecuador to Iran and Scotland to the US
http://www.policyinnovations.org/ideas/innovations/data/000085
Firstly, Iceland could begin a programme of Quantitative Easing – there are precedents – and create sufficient Icelandic Equity/Public Credit (ie undated redeemable Icelandic krona) to be used to repay the mortgage loans of any Icelander who wished to join the scheme.
The land would then be transferred to a ‘custodian’ and an affordable rental would be set, which would be index-linked, and would include an element in respect of maintenance.
An Icelandic ‘Land Rental Pool’ would thereby be created within a Capital Partnership framework agreement, and this would be divided into proportional Units eg billionths.
Existing mortgages would be cancelled, and the debts exchanged for an appropriate number of Units in the Pool.
For Occupier ‘Co-owners’ the result is extremely affordable finance, without a debt burden, and anything paid more than the rental due would acquire Units of quasi-Equity. If an Occupier maintains the property himself to the agreed standard, he is credited with ‘Sweat Equity’ units as well.
For co-owner Investors the outcome is:
(a) Secure – because by definition, affordability = certainty; and
(b) Liquid – because there is only one class of Icelandic National Equity, and if international investors don’t buy Units and the price falls, then Icelanders will buy them as an investment which they can exchange for property use.
This presentation outlined the model in the context of the Irish property disaster zone
http://www.slideshare.net/ChrisJCook/equity-shares-a-solution-to-the-credit-crash-presentation
The second half – outlining Unitisation – is also on YouTube here
http://www.youtube.com/watch?v=I5mgnR5lagI
The solution to the Icesave problem lies down the same quasi-Equity road.
Iceland would create undated redeemable Units of ‘Icelandic Equity’ as a form of sovereign credit, rather than debt. Iceland would pay a reasonable return, maybe denominated in dollars (and possibly linked to energy prices and backed by a carbon levy) and it would be open to the UK and Holland to keep these Units or sell them in the open market. Iceland, or Icelanders, could redeem Units whenever they saw fit.
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1 year ago
[...] The Enemy Reveals Himself [...]
Vilhjalm A.
1 year ago
@Chris Cook
I like the general idea — monetising Icelandic junk debt and handing it over to the UK/NL. But your scheme does have some flaws:
- Quantitative Easing is a fancy term for “printing money with nothing to back it up”, and amounts to the Icelandic government writing down debt and possibly handing over the written-down debt to foreign creditors (e.g. the UK and NL).
- Who exactly is the custodian, and how do they collect and what happens if they try to foreclose on the homes? Plus, any sort of global financial exchange inevitably attracts the locusts like Goldman Sachs, Morgan Stanley, hedge funds et al. who skim off profits. (Anyone with half a brain knows that Icelandic real estate is never going to be a good investment (just look at all the empty and unsold units), so why would anyone buy shares in the Pool?)
- QE would effectively add money to the Icelandic sovereign debt, which would make it more difficult to comply with EU rules on sovereign debt limits (if Iceland tries to join the EU)
- Your scheme does not distinguish between those who actually need debt relief and those who don’t (who might exploit the scheme just to accumulate cash), and between homeowners and home-rental owners
- There is already enough assets in Old Landsbanki to cover most of the Icesave debt to the UK/NL. I am sceptical of the Old Landsbanki Insolvency Committee and do not necessarily believe that they have accurately stated the real recovery rate, but it appears that the recoverable asset amount is more or less accurate since the asset amount is after write-downs. The only problem is actually recovering those assets. For instance, Old Landsbanki has several billion Euros worth of assets in Iceland located in Iceland. The Insolvency Committee apparently is unwilling to sell those assets (probably fish-quotas, commercial real estate) or collect on them because the debt is held by politically-connected owners. The Old Landsbanki assets in UK could be sold tomorrow if the Icelandic Committee wanted to, but it looks they are trying to drag out the process to maximize recovery (a stupid plan, since the UK economy is more likely than not to crash in the next few years).
- There are already a better and simpler and more “targeted” method for providing debt relief to homeowners: it is the “Homeowners Chapter 11″ plan proposed by Joe Stiglitz, based on the general suggestion of Zingales et al. (plus related plans already implemented in Ireland). This plan gives home-mortgage relief to those with limited assets and incomes who can’t make payments easily, or at all. Stiglitz is an official adviser to the Icelandic government — so why don’t they call him up on the phone and ask him what to do? Or how about buying a copy of Stiglitz’ new book Freefall, where he outlines the plan?
- The Icelandic government does not really want to help the Icelandic lower and middle classes. Apparently their plan is to DELIBERATELY STRANGLE them. Iceland is not facing a national debt problem so much as a hard foreign currency problem. Imports exceed exports by something like 500 billion ISK per year, and since imports must be paid with hard currency, the only solution is to reduce domestic consumption — imports — by a large amount. Hence the real reason for no mortgage relief and increased income taxes. The plan is to reduce the discretionary income available to the Icelandic public, who would otherwise use that money to buy foreign goods. In addition, if people have less money to spend on ordinary goods, then there is less inflation.
The government plan of course makes no sense, since the government should be trying to stimulate the economy, and money that goes to poor people is the most effective way to do that. The government should raise taxes considerably on the upper income brackets and on luxury goods, raise the dividend tax-rate and raise the tax-rate on the aluminum companies. Or nationalise the fish-quotas. Why don’t they do that? For the usual reasons in Iceland – they don’t want to challenge the established monied interests.
Chris Cook
1 year ago
Co-ownership is a completely new take on tenure of, and investment in land/location.
For anyone steeped in conventional finance, anything other than conventional debt and equity, and ‘for intermediary profit’ transaction markets can take a bit of getting your head around.
See this, which went up on the web today – it incorporates an example
http://www.progress.org/2010/partners.htm
The Icelandic people collectively (through the State? Or a Foundation?) would be the Custodian, and would own the land in common. This custodian would have veto powers of stewardship (eg over land use); it’s not a service provider or manager.
Within the Co-ownership ‘master partnership’ framework agreement:
(a)Occupiers may change – facilitated by service providers;
(b)Investors may change (and occupiers may invest and disinvest) – facilitated by liquidity providers; and
(c)’Manager’ service providers may change;
but ‘property’ is never bought and sold again.
An occupier will only be evicted if he has no equity (which would mean he could pay rent in Units); and can’t or won’t pay the rent. But that’s the situation a conventional tenant faces now.
An Investor has no default risk (there being no capital repayment), but there is a risk that low occupancy rates will reduce the return ON capitalby shrinking the rental pool.
There is a liquidity risk, but that is minimised by the fact that there is one single ‘Rental Pool’ (as opposed to numerous tranches of debt by date, interest rate and issuer). Also if pure investors don’t buy Units, and the price falls, occupiers will.
The scheme is optional, and consensual.
Anyone may join, and exchange debt for equity. Or they can stay out and take their chances with conventional debt funding and ownership.
There are quite a few use cases eg negative equity and equity release (for which this model beats any other model into a cocked hat). The model works for all of them, simply and elegantly.
You can think of it as a REIT with Units redeemable in property use if you like. If Goldman or anyone else wishes to buy Units that’s fine: they have no control over the assets, merely a claim on rentals, if there are any, of course. Maybe Goldman’s pension fund might like them.
Stiglitz’s model is interesting, but it’s still debt-based and ameliorates the problem but does not remotely solve it. All you have to do is look at the financial outcomes of an equity-based model and you will see that financing with no obligation to repay debt, and no compound interest, wipes the floor with conventional financing and tenure.
Re QE you share the misapprehension that QE is debt. It is not: as Henry Liu, among others, points out, it is sovereign credit, and more akin to a form of redeemable equity.
Re the EU, why would Iceland wish to join another dysfunctional monetary system when they could fix their own by basing it directly on Icelandic assets. The idea of land backing for doemstic money (which this proposal actually is) has been around since 1705.
It’s not Rocket Science, and I think you are looking for complexities that don’t exist!
Finally, this co-ownership model, being consensual, does not actually require legislation, merely documentation and agreement.
Looking internationally at Iceland’s trade balance, there are interesting Icelandic solutions for refinancing Iceland’s debt load on aluminium and hydro schemes through energy ‘unitisation’ and variations on tolling agreements.
Iceland’s international transactions can and should be based on energy exports but this energy commons need not be in private hands either and may be refinanced without conventional debt and compound interest.
Energy markets are my core competence: this presentation has got a lot of interest in Scotland and in the Middle East (it’s a sharia’h compliant solution – serendipitously)
http://www.slideshare.net/ChrisJCook/energy-pools-scottish-energy-institute-11-11-2009
Bromley86
1 year ago
That grin again, withou amusing counterpoint by Johanna:
http://icelandweatherreport.com/2010/03/the-1000-words.html