Don’t be. Voters are illogical, as is evident by this excellent summary from an article in Time. They would even vote for the party which caused the biggest economic downfall worldwide in recent history:

With these acts of legislative sabotage, Republicans tapped into a deep truth about the American people: they hate political squabbling, and they take out their anger on whoever is in charge. So when the Gingrich Republicans carried out a virtual sit-down strike during Clinton’s first two years, the public mood turned nasty. By 1994, trust in government was at an all-time low, which suited the Republicans fine, since their major line of attack against Clinton’s health care plan was that it would empower government. Clintoncare collapsed, Democrats lost Congress, and Republicans learned the secrets of vicious-circle politics: When the parties are polarized, it’s easy to keep anything from getting done. When nothing gets done, people turn against government. When you’re the party out of power and the party that reviles government, you win.

From Time.com

It might have been a politically tactical mistake for the parties on the left to ask for an election in 2009. By taking the helm at this lowest point in Iceland’s history they have put themselves in the firing line, especially the Social Democrats who suffer the biggest damage.

Voters are strange like that. They’d rather blame the fire department than the arsonist if the fire is damaging enough.

And by delaying an IceSave solution, the opposition has cost the country dearly in lost recovery time. But the voters blame the government. That is the nature of the beast. This is fear and confusion at work.

But many of us who agree that this government is a better option than anything with the party which orchestrated the downfall have been really disappointed. Maybe things would be a little bit different if the Social Democratic / Left Green fire department had concentrated on putting out the fires in the bedrooms instead of the wine cellar?

Before the Independence Party has gone through reform and kicked the bad habits that are the fishing lobby and David Oddson’s isolationism, the Independence Party can not be allowed back into government. It would not necessarily be in their best interests to reclaim their seat in government until after the ghosts of the past have been exorcised. When that happens, the Independence Party will have moved significantly towards the spectrum where Social Democrat voters believe their party should be.

The most critical number in the poll for any of the parties, or any new parties which might be on the horizon are the 40% who are undecided. The government should remember that Clinton did win re-election two years later. Most people realised that their frustrations could bring them a Newt Gingrich / Bob Dole double act and weren’t quite so keen on that one.  But Iceland can not afford a repeat of what happened in 2000 in the US. The long term consequences of an unreformed Independence Party in government could be catastrophic.

Related posts:

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2. The co-insuring grip of terror
3. Iceland Takes Two Steps To The Left

From Vilhjalm A. (translations mine ):

Finally the government has come out with their version the of the “skjaldborg” – the fortress around Icelandic homes.

Here’s what the government proposes to do:

- special solutions for those with low income or have suffered short term drop in wages
- solutions for people with two homes
- lower limits on penal interest rates
- on foreclosure, the market value of homes will be withdrawn from claims
- people will be able to live in their home for 12 months in spite of bankruptcy or foreclosure
- the limits on collection fees lowered
- rules on tax claims write offs reviewed
- moderate write offs tax free
- large write offs taxed
- effects of price indexation limited

The average employed working Icelander with a mortgage gets ….. just about nothing. No reduction / write-down of the mortgage principal. No way to negotiate with the banks, except by filing a lawsuit against them.
But if you own TWO homes, congratulations, you get relief – just give back one of the houses!

Oh my! This is going to be costly. How should we finance the rebuilding? - Johanna and Steingrimur at the household debt cliff drawn by Halldor Baldursson

See the critical article by Samtök lánþega blog, entitled “Ekki neitt !” (Nothing!):
http://gandri.com/?p=885

There is nothing on previously defined solutions for mortgage adjustments.

There is nothing there on actions to force financial institutions to abide by the laws.

There is nothing there about interpreting unclear contractual obligations in the favor of consumers, as is clearly stated in Icelandic law that it should.

There is nothing there about actions to stop collection methods based on contracts which have been judged illegal by Icelandic courts.

There is nothing there about speeding up those court cases awaiting a Supreme Court’s decision.

There is nothing on the ideas of individual MP’s about the so-called “key-bill”.

There is nothing there on the ideas of individual MP’s about lowering the statue of limitations on individuals from 10 years down to 4.

Vilhjalm A again:

In the meantime the banks are happily handing out huge loan write-downs to businesses and granting themselves salary bonuses.

I don’t think it’s possible any longer to pretend that the government has some secret plan or motive to help the average Icelander. And the do-nothing strategy is not the result of ineptitude, either. It’s looking more and more likely that the real intention of the government is to reduce the need for imports by depriving the average person of almost all available discretionary spending, first by increasing taxes on everything and second by making them spend almost all their money on paying off loans to the banks. You can’t spend what you don’t have.

Finally my own two cents: The way they presented these “solutions” does not bode well for the Social Democrats or the Left Greens. Sure it is a step in the right direction, but the focus is on soothing the pain for those who overextended themselves during the good times, a strange emphasis for the so-called “welfare” government. It might be possible that there has developed a siege-mentality within the government after the monumental tasks it has faced since assuming the responsibility to clean up in the economic disaster area. But by calling this a definite solution and pretending like this is going to put things to rest regarding the massive household debt Icelanders are facing because of the collapse of the krona, the government appears out of touch.

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1. Discussion On Household Debt Held Hostage By Progressive Party
2. The Icelandic Banks Question of The Day
3. Iceland In Debt

The banks are now agitating for re installing bonus systems for the employees of their private banking and corporate banking divisions.

Now it is great if bonus systems are available for employees, but when implementing those some basic questions must be answered. What are we rewarding?

Remember, these are the banks whose collective bankruptcies put them in third place over the largest corporate bankruptcies in the US according to Jared Bibler of the Financial Authority!

Anywhere in the US! Ever!

Just Kaupthing manages fifth place on that list, above such luminaries as Enron, Texaco, Chrysler and Pacific Gas. Landsbankinn is in ninth place and Glitnir tenth.

The result from Iceland’s heady experiment with becoming a global financial player is three Icelandic businesses which would make the US top ten bankruptcy list!

Three!

For a country with just over 300.000 inhabitants that must be some sort of galactic record.

Those bankruptcies can hardly be blamed on the staff of the banks’ retail branches who were lending mortgages, overdrafts and credit cards. No the problems must have really started at a higher level. Like private banking and corporate banking.

And the staff is much the same as before the crash. And now they want bonuses again.

How does that work? A successful private banking employee works the phone and his contact list again and again to make money for his division. Do Stefan and Anna really pick up the phone and say, “Hey remember that 100 million you entrusted me with in 2006-2007? Yeah, shame about that. But let me tell you about the great opportunities our asset management team has discovered for you now”.

What on earth are their customers thinking?

There shouldn’t be any reason for any customers to continue banking with the same people and the same banks…unless.

Unless those same customers have benefited somehow from handsome write-offs. And that would especially make sense at the corporate level, and to a lesser extent in private banking.

Anyhow, what is going to happen if these bonuses are not approved of? Are these employees just going to stand up and leave?

And so what? Where are they going to go? Are they really sought after in the City, Wall Street, Dubai or Copenhagen? The management should at least not worry about finding enough talent to fill their shoes at this moment in time. With close to 10% unemployment and a highly educated workforce, that shouldn’t be a problem.

Social Democratic MP Robert Marshall today said that if these bonuses would become reality then they should be taxed to the hilt. A welcome sign that there still is life in that party. But would the Social Dems really dare? Or are old habits really just too hard to break?

Related posts:

1. “Why Should These People Be Paid Bonuses?”
2. Apology Accepted But Let’s Talk About This Bonus System Thing
3. Weak authority

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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3. Will there be a fair solution?

The Icelandic government’s economic advisor Tryggvi Thor Herbertsson, on a leave from his post as CEO of Askar Capital Investment Bank and two years after his whitewash report on the Icelandic economy with Columbia professor Mishkin, with some interesting promises to the BBC on October 4, 2008.

What happened next? The Independence Party’s voters elected Tryggvi as an Althingi MP.

Also in the beginning, a certain someone who says he tried to warn everyone about the impending disaster.

Related posts:

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And Hannes Smarason of FL Group fame personal debts to Landsbankinn amount to half the IceSave amount owed to the Brits and the Dutch according to the latest calculations. Of course without proper collateral or what?

Related posts:

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But if you happen to own or control a business which has been bankrupted in Iceland in the last couple of years, the way back to 2007 is made easy by the country’s banks, accountants and business laws. Through those channels, twisting and turning is made strikingly less hazardous.

DV reports that the owner of Leonard, one of Iceland’s most prestigious stores handling jewellery and fine watches transferred the operations onto a new social security number and signed an agreement with his wife that she would assume control of the new company. Last week he was declared bankrupt himself. But through this manoeuvre the couple has managed to get rid of the old debts but still keep the store.

This is not an exceptional case, but a blueprint for why so many of the most reckless business people of the last decade are still heading the companies they’ve run into the ground.

This is why Geir Haarde and David Oddson used to say their aim was for Iceland to become a “business friendly” country.

I for one don’t understand why business schools bother with explaining basic rules in finance and economics to their students anymore. Why are they still teaching that “those who assume the greatest risks also should reap the greatest rewards because they can also incur the greatest losses”?

Why don’t they just teach students how to create two business entities and shove debts into one and assets into the other? You keep your assets and the debts fly off to “money heaven”.

Wasn’t that also how IceSave was supposed to work for Landsbankinn’s owners and management team?

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Like other countries which have run their economies into the ground – including Greece as a good example -  Iceland must take responsibility for itself. So even if the Icelanders voted no and every last one of them had banged pots and pans in the streets of Reykjavik, the global community has to remain steadfast. If the Icelanders can not agree with the Dutch and the British about payment terms, then they naturally can not expect further loans from either the IMF, the Nordic countries or progression in the EU talks.

It must be noted for fairness sakes that the Icelanders have underlined that their position is not one of not paying, but about the details. And Netherlands and the UK have listened. When Iceland voted no anyhow, the two countries had already offered a better deal, which the Icelandic leadership had already rejected as not good enough. It does not bear witness of either humility or sense of reality.

From Denmark’s Berlingske Tidende (in Danish)

Berlingske noting that Icelanders seem to lack the understanding that actions have consequences.

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- Steingrimur J. Sigfusson, Finance Minister of Iceland two years after an economic collapse all but wiped out the Icelandic financial sector after years of “hot money” flowing into the country because of exorbitant interest rates imposed to battle inflation.

He is crediting the arsonist for bringing a bucket of water to the fire.

What he is really celebrating is Iceland moving one step closer to the developing world and  improving our “competitiveness” through a worthless currency. Never mind the comparative loss of wealth to citizens in the developed world.

A classic argument for not joining the EU and improving the livelyhood of Iceland’s citizens.

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It is quite a bit strange to hear people say that they would still vote for the Independence Party today, even after its Icarian flight of the past two decades and its nepotistic distribution of the wealth of the nation.

But it so happens that there are sensible, moderate people lurking in the party’s backrooms. They just have to start claiming their party back from the fanatic right. It is time for them to build from the ground what many Independence Party members think their party is about, a democratic party favorable to independent business owners and individual rights, and weed out the frentic big government, oligarcich  Friedmanites (yes, the irony but that is what the party had become).

The party attempted to confront the need to reform itself  in the wake of the 2009 elections and produced an interesting self-examination and plan for a new beginning.  But by stirring fresh and old wounds alike, the still hypnotic Great Leader managed to stir up enough hate and venom at the party’s convention that it put those plans to a halt.

David’s heir, Bjarni Benediktsson has appeared too frail to go to work on claiming the party back for its people from the special interests of fishing quota kings and fanatic republicanite ideologues.  A large part of voters of the party have been had for fools for too long now and would doubtlessly celebrate a lead from a leadership who is not afraid of the world around them, who attempt to distribute the wealth in the most efficient directions and is committed to building a prosperous nation instead of self-serving billionaires.

The old ghosts could be pushed out to the fringes where they belong with the Progressive Party. At a time when Iceland is divided because of those interest groups, a reformed Independence Party migh just hold the keys to a successful reconstruction. The moderates need to step out and claim their place, if they don’t they risk unsettling their country even more. But that place will not be theirs unless they stop the rot.

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