Iceland’s voters expressed their outrage on Saturday against bankers, the government and what they saw as foreign bullying, overwhelmingly rejecting a plan to pay $5.3 billion to Britain and the Netherlands to reimburse customers of a failed Icelandic bank.

With all but 2,500 of the 143,784 votes counted, the authorities said, 93 percent voted “no” and 1.8 percent voted “yes” in the first public referendum ever held on any subject in Iceland. The remaining ballots were declared invalid.

But the referendum was more symbolic than substantive, and the Icelandic government hastened to make clear that Iceland would still pay back the money, albeit on different terms from the ones rejected.
[…]
How to repay the debt, which represents more than 40 percent of Iceland’s gross domestic product, has consumed this small, isolated nation for the last year and a half, since its banks failed, its stock market crashed and its currency collapsed.

The money represents a portion of the losses incurred by more than 300,000 Dutch and British customers of Icesave, an Internet branch of the Icelandic bank Landsbanki. The bank went bankrupt in October 2008, along with 85 percent of Iceland’s banking sector. The Netherlands and the British reimbursed their citizens, and are now pushing to get the money back from Iceland.

The three countries have been fighting over the deal’s terms ever since. An agreement this fall that would have given Iceland 15 years to pay the money, at 5.5 percent interest, only narrowly passed the country’s Parliament.

But on Jan. 5, [Icelandic President] Mr. Grimsson unexpectedly refused to sign the bill into law, setting off the need for a nationwide referendum.

Seems to me the referendum was a stunt by the government to let the public vent and try to get them onside. I suspect Americans would have voted similarly had the US had a referendum on the bailouts.




  1. gear says:

    I think the Icelandic people were venting because Great Britain placed the whole country on the terrorism watch list. They seem insulted by that for some reason.

  2. moss says:

    Gee, you all read a lot don’t you?

    The government opposed the referendum. They’d already negotiated a settlement with the Brits and the Dutch.

    Parliament was just about invaded by the whole population of the island nation after they voted to accept the terms – and the president vetoed the bill to save face – and allowed the referendum.

    People still stood outside the Allthing parliament and demonstrated the whole day of the referendum.

    The fracking Brits didn’t just place Iceland on the terrorism watch list, they used their version of the All-American Patriot Act to freeze the assets of anything belonging to Iceland or Icelanders – inside the UK – giving them the same status as members of Al Qaeda.

    Wouldn’t you be pissed?

  3. pilgrim says:

    I really don’t know much about this Iceland banking melt down but i raises questions. Why did 300,000 Dutch and the Brits put money in an Icelandic Bank? Tax evasion? Maximized profits? Why would the Dutch and Brit governments cover the private investments in a foreign country? To own the debt and control that country? Is Icesave part of the central bank of Iceland? Could to collapse have been orchestrated to assume control of Iceland?

  4. Phydeau says:

    A few months ago I read a pretty long article on the banks in Iceland. Apparently they got caught up in the go-go mentality that the big American banks were in and they suffered a lot when the crash came.

  5. qb says:

    So, the EU (mainly UK and ND) want the Icelandic taxpayers to cover the losses by idiot bankers and their foreign investors, even though the Icelandic government is under no legal obligation to do so. Makes sense to me.

    Gee, banks that don’t have to operate transparently work just fine. No need for the public and the government to know what’s going on with their own money.

  6. Greg Allen says:

    When I first heard this story on NPR it begged this question:

    If Iceland taxpayers refuse to pay, who does?

    Anyone know?

    We know that, in America, the bankers PERSONALLY walked away fabulously rich, the tax payers ponied up a huge chunk.

    But wasn’t biggest penalty for deregulation the loss of our personal wealth.

  7. Nobody says:

    @pilgrim
    Because we live in europe we are allowed to put our money wherever we want. We can have an account with ING (a Dutch bank) – we can even buy a German car.

    These were regular ordinary people’s saving accounts and so are insured by the government. When they failed the UK seized the assets of the BANK to stop them simply being repatriated. It’s rather like stopping Toyota transferring all the money home and claiming it can’t pay any lawsuits because Toyota USA doesn’t have any money

    If Iceland refuse to pay then simply nobody accepts Icelandic guarantees. An Icelandic hosptial needs an MRI? then Philips/Siemens will want paying up front in euros. Iceland air needs fuel or landing fees – the pilots will have to carry cash. Ultimately like a third world country they will have to pay for every bit of foreign currency.

    If they don’t pay back their own savers then nobody will put money in a bank – no mortgages, no credit cards, no business loans, no pensions, no insurance – no country

  8. Greg Allen says:

    Thanks “nobody” … that was a helpful explanation.

    But who actually pays for the money lost in their failed experiment in deregulation?

  9. Greg Allen says:

    I, for one, have sympathy for Icelanders.

    Deregulation made rich people richer… so why should the average person be first-in-line to pay for the clean-up?

    The people who profited most from this disastrous experiment with deregulation should be taxed and fined dead-broke before the average person has to pay-up.

  10. Mr. Fusion says:

    #10, Nobody,

    I’m still a little confused by your explanation.

    Yes, I understand you may deposit your money in any bank or pseudo bank you like. But, who is responsible for regulating that bank? Is it the local (ie UK or Dutch) authorities or the home authorities? If the local authorities were responsible, obviously they failed. If it is the home country then the depositor needs to do due diligence and accept the risk of using a foreign regulated bank.

    If I invest in the Imperial Bank of Toga which will guarantee a return of 25% but it goes belly up, I can’t run to my federal government expecting them to pay up? The Toga government will only laugh at me. At some point, the investor has to accept some responsibility.

  11. Breetai says:

    it’s about time someone told the banks to shove their fraud up their ass. If the scam wasn’t an blatantly planned event I’d say let em crash too.

    The Banks engaged in Terrorism and need to be treated accordingly.

  12. Awake says:

    Capitalism at it’s best.

    – Banks go broke and are rescued by the government. The CEO of BofA walks away with $87 million for his leadership last year. Although they have been helped by ‘the people’, banks refuse to renegotiate loans and screw up the economy worse by withholding the capital they are supposed to be lending.

    – Health care has become a purely for-profit business, costing twice as much as the next nearest developed nation, and providing half the effective care, with all of the extra costs going as profits to the health companies.

    Capitalism… making the poor think they can get rich, just like your local state lottery… once in a while one person strikes it rich, while in the mean time 99.999999% get screwed out of their money, and idiotically smile and defend the system while getting screwed.

  13. Nobody says:

    @Mr. Fusion
    The banks were operating under a UK license which meant they had to offer the same guarantee as other Eu/UK banks. (It’s a little complicated for Iceland since it’s not in the Eu but has some Eu trading rights)

    Ultimately the Icelandic government was responsible but the UK paid savers upfront to prevent a run on all the other high street banks and a complete collapse of the economy.

    To operate legally in the UK the bank had to offer the same protection as any other UK bank, it’s just like a foreign car in the US has to meet US safety requirements.

    If Iceland is concerned about the losses it should have required banks to hold more reserves or demanded larger insurance payments. What it actually did was allow the country to be run as a giant hedge fund – it was quite happy to make most of it’s GDP from speculation but doesn’t want to pay the people that it borrowed the money from.

  14. bdgbill says:

    I was in Iceland last summer and have done a good amount of reading on this subject. Long story short, the Icelandic people got royally screwed (mostly by Britain).

    The entire population of Iceland only recently passed 300,000 people. This is about the population of a medium sized city in the US. To raise a billion dollars, every man woman and child in the country has to come up with over $3000.00. Make that 5 billion plus interest and you are talking about dooming an entire generation of Iceland’s people to a lifetime of crushing debt.

    All because some British and Dutch people trusted an uninsured internet bank with their savings.

  15. qb says:

    Nobody,

    Insurance in the US and UK really doesn’t matter since the companies like AIG aren’t required to carry anywhere near enough tangible assets to cover their potential liabilities. Unless things change insurance companies are just another public trough feeder like banks.

  16. Mr. Fusion says:

    #16, Nobody,

    The two banks in question were licensed by Britain. That meant Britain regulated them. If they were not sound then Britain should have taken control of them BEFORE the collapse. If there is fraud involved on the part of the banks in Britain then I’m sure Iceland would not harbor those guilty.

    The last I heard, Her Majesty’s Government will not pay Lloyd’s of London’s liabilities, whether sold in Britain or internationally. Nor will Britain investigate fraud perpetuated by Lloyds traders on international underwriters. So, why should any foreign government support a locally licensed bank in Britain?

  17. pagon says:

    This is a test.

  18. pilgrim says:

    @bdgbill,
    Icelanders rejected a bill that would have saddle each citizen with $16,400 of debt, not 3,000, according to Businessweek. That’s 45 per cent of entire 2009 economic output of Iceland.
    No wonder they rejected it.
    @nobody, I appreciate the edification and perspective, but what was the motivation for the Dutch and Brits to place their money in an Icelandic bank.
    Was it a higher return? If so how much higher that an EU based bank?
    How much of their investment was repaid by the governments. The full value?

  19. Nobody says:

    >That meant Britain regulated them.
    Britain regulated them to the extent that it agreed with the Icelandic government that Icelandic bank laws and guarantees were equal to UK/Eu ones.
    It’s like we allow Boeing aircraft to land at Heathrow because we agree that the FAA certification is equivalent to the UK’s.

    There doesn’t have to be any fraud involved.

    >The last I heard, Her Majesty’s Government will not >pay Lloyd’s of London’s liabilities,
    Lloyds was not guaranteed – for historical reasons it isn’t even limited liability!

    The bank guarantees are totally different.
    What the UK did was cover the money in your checking account when your bank goes bust. If it didn’t do this you have the 1930s scenes of a bank run from a Wonderful life.

    It’s not like the FED bailout covering the gambling losses of AIG.

    The alternative, if you can’t trust the foreign regulator, is to require foreign banks to deposit gold equal to the value of their borrowing. Imagine if American express or Visa had to do this to operate in the Eu. Everytime you bought a T-Shirt in London your American credit card had to give gold Sovereigns to the merchant until you paid your bill!

  20. yankinwaoz says:

    So lets see if I have this right.

    An Iceland bank was licensed to operate in the UK and to accept deposits. The UK deposits were insured by the UK version of the US FDIC.

    The bank failed. The UK’s FDIC paid claims to cover the deposits.

    Now the insurance company wants to recover their loss by demanding payment from the Island Government?

    That is BS. They should not have insured the deposits, or licensed the bank to operate in the UK, if they didn’t know what they were insuring.

    Are they claiming fraud by the bank? Then they should press criminal charges against the executives.

    From what little I know, the UK’s FDIC fell asleep a the wheel and insured a bank they didn’t know enough about. Shame on them.

  21. homehive says:

    To me, this just goes to show that Scandinavians have the most intelligent electorate in addition to the best-looking women in the world.

  22. Nobody says:

    >An Iceland bank was licensed to operate in the UK and to accept deposits.
    >The UK deposits were insured by the >UK version of the US FDIC.

    Not quite.
    The bank’s deposits were insured by the Icelandic government, the UK agreed to license them because it accepted that the Icelandic government’s FDIC was up to Eu standards.

    When it failed the UK’s FDIC (FSCS) paid out up front, hoping to recover the money from Iceland’s FDIC later.
    Partly this was to prevent a run on every other high street bank whether UK/Eu/other – there had just been a run on Northern Rock, a small building society (=Savings&Loan) in spite of the government telling everybody it was insured.
    So if the government had told people that their money was only insured in a UK bank there would have been panic. How do you tell if the Hong-Kong and Shangahi Banking Corporation (ie HSBC) is British?

    The other complexity is that a lot of local councils had put a lot of savings into these banks (they had been encouraged to seek the best return). In theory these wouldn’t be covered by the Icelandic FDIC because they were more than the $100,000 limit.
    But the prospect of cities going bankrupt, Police, fire and hospitals closing because of a banking collapse was politically unacceptable (having an officially bankrupt city isn’t as commonplace in Europe)

  23. sargasso says:

    #4. I agree. And should mention, that interest rate is the highest available on the wholesale exchange.

  24. qb says:

    To make this less poufy, each Icelander would need to pay $135 per month for the next 10 years.

  25. Nobody says:

    Putting the anti-banker rhetoric aside, the long term effects are probably:

    The Eu will demand much larger contributions to it’s FDIC from Eu banks. It will have to block foreign banks from operating in the Eu (at least for high street banks) – unless they also pay full Eu FDIC.
    In the past the only foreign retail banks were middle eastern (like BCCI) which weren’t guaranteed – but that was OK because using one pretty much meant you were a crook or terrorist anyway.

    It might have a big effect on the US – if the Eu doesn’t believe the Fed (or US voters) would bailout Eu savers in the event of a crash – then it might be very hard for US banks to operate in the Eu and so for US companies trying to do business there.

    Iceland is royally screwed. It’s economy was totally based on being a giant hedge fund. It’s only hope now is to join the Eu, adopt the Euro and let Germany bail them out. But trying to do this while defrauding (as they see it) two of the Eu’s major members is going to be tricky.

    It can’t even borrow money – no commercial outfit is going to touch it and with no friends, political clout or strategic value it’s influence at the IMF is zero.

    Unless Al Queda take the north pole and the US needs an Icelandic airbase again, or the world suddenly develops a massive demand for Cod or Bjork albums they don’t even have anything to sell.

  26. yankinwaoz says:

    Thank you #25 (Nobody). In the US, when a bank is insured by the FDIC, there are stickers on the doors, logos on the website, etc. And, if a bank takes deposits that are NOT insured, they have to point that out to you.

    Don’t UK depositors have the same checks and balances?

    It seems to me that the UK’s FDIC is the victim here. They covered the loss because they were directed to by their bosses in the UK government. So it should be the UK gov’t that eats it since they made the decision to pay a claim on something they did not cover.

    BTW… what is the UK’s FDIC? Sorry to our non-US readers to have to wade through US acronyms. The FDIC is the US government’s semi-autonomous agency that insures your money in bank account (within limits).

  27. right on, Iceland. right on.

  28. Nobody says:

    The UK (rough) equivalent of FDIC is Financial Services Compensation Scheme (FSCS). It covers savings, cash investments and insurance if the bank/insurance company goes bust – upto a limit.
    Like the FDIC it’s paid for by a (too) small charge on banks, but like FDIC, it was really designed to handle rare 1930s style small-town bank failing – not a global credit crunch.

    You don’t even see the FDIC signs in the UK because generally the banks have been so well regulated that it never occurred to any member of the public that a ‘real’ bank could fail – Barings and BCCI didn’t affect ‘real’ people – that was part of the governments rush to promise anything to reassure people.
    And anything calling itself a bank in the Eu is very heavily policed, even small local charity credit unions.

    Like the US it’s semi-autonomous; but the Bank of England, the treasury, the government, FSCS and the various financial regulators are all ultimately the taxpayer.

    The Icelandic-terrorism bit was unfortunate wording – the law that lets them seize foreign assets was tacked onto the end of a defence bill so it got a rather scary title.

  29. Richard says:

    So the missing information in the article is did Iceland guarantee the accounts, and if so for how much? I get the feeling, because this is left out, that there were no guarantees at all. In which case I’m with the Icelanders. Shame on the UK councils for being so greedy.

  30. Germain says:

    So why did the UK need to use anti-terrorism law to take control of the Icelandic banking assets. Something is very fishy, here, and its not the cod.

    Did Iceland government guarantee the accounts the answer is NO.

    As for Iceland being screwed, with such a highly educated population and a large island full of untaped natural resources, along with virtually free energy, I have a feeling Iceland has a brighter future than people give it credit for.


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