Thursday, April 14, 2011

Taking on the banksters

Of all the people standing up to the banksters, the folks in Iceland win the award for bravery--hands down.

Of course, every time someone stands up to the crooks in suits, the clearer it becomes that the banksters, while seeming to have a great amount of power, are actually paper tigers.  They can't even foreclose on frightened homeowners without the hired muscle of state power represented by the Shire Reeve (Sheriff).

Why Iceland Voted ‘No’
April 11, 2011   By Michael Hudson
About 75% of Iceland’s voters turned out on Saturday to reject the Social Democratic-Green government’s proposal to pay $5.2 billion to the British and Dutch bank insurance agencies for the Landsbanki-Icesave collapse. Every one of Iceland’s six electoral districts voted in the “No” column – by a national margin of 60% (down from 93% in January 2010).
The vote reflected widespread belief that government negotiators had not been vigorous in pleading Iceland’s legal case. The situation is reminiscent of World War I’s Inter-Ally war debt tangle. Lloyd George described the negotiations between U.S. Treasury Secretary Andrew Mellon and Stanley Baldwin regarding Britain’s arms debt as “a negotiation between a weasel and its quarry. The result was a bargain which has brought international debt collection into disrepute … the Treasury officials were not exactly bluffing, but they put forward their full demand as a start in the conversations, and to their surprise Dr. Baldwin said he thought the terms were fair, and accepted them. … this crude job, jocularly called a ‘settlement,’ was to have a disastrous effect upon the whole further course of negotiations …”
And so it was with Iceland’s negotiation with Britain. True, they got a longer payment period for the Icesave payout. But how is Iceland to obtain the pounds sterling and Euros in the face of its shrinking economy? This is the major payment risk that is still unaddressed. It threatens to plunge the krona’s exchange rate.
The settlement proposal did lower the interest rates from 5.5% to 3.2%, but it included running interest charges on the bailout since 2008. It even included the extra-high interest charges that led depositors to put their funds in Icesave in the first place. Icelanders viewed these interest premiums as compensation for risks – that were taken and should be lost by the high-interest Internet depositors.
So the Icesave problem will now go to the courts. The relevant EU directive states that “that the cost of financing such schemes must be borne, in principle, by credit institutions themselves.” As priority claimants Britain and the Netherlands will indeed get the lion’s share of what is left from the Landsbanki corpse. That was not the issue before Iceland’s voters. They simply aimed at saving Iceland from an open-ended obligation to take the bank’s losses onto the public balance sheet without a clear plan of just how Iceland is to get the money to pay.
Prime Minister Johanna Sigurdardottir warns that the vote may trigger “political and economic chaos.” But trying to pay also threatens this. The past year has seen the disastrous experience of Greece, Ireland and now Portugal in taking reckless private sector bank debts onto the public balance sheet. It is hard to expect any sovereign nation to impose a decade or more of deep depression on its economy inasmuch as international law permits every nation to act in its own vital interests.
Attempts by creditors to persuade nations to bail out their banks at public expense thus is ultimately an exercise in public relations. Icelanders have seen how successful Argentina has been since it imposed a crew haircut on its creditors. They also have seen the economic and political disruption in Ireland and Greece resulting from trying to pay beyond their means.
Creditors did not give accurate advice when they told Ireland that it could pay for its bank failures without plunging the economy into depression. Ireland’s experience stands as a warning to other countries about trusting overly optimistic forecasts by central bankers. In Iceland’s case, in November 2008 the IMF staff projected yearend-2009 gross external public and private debt at 160% of GDP – but observed that an exchange rate depreciation of 30% would push the ratio to 240% of GDP, which would be “clearly unsustainable.” But the most recent IMF staff report (January 14, 2011) shows end-2009 gross external debt at 308% of GDP, and estimates end-2010 gross external debt at 333% – even before taking the Icesave and other debts into account!
The main problem with Iceland’s obligation to Britain and the Netherlands is that foreign debt should not be paid out of GDP (unless you want to force down the exchange rate). Apart from what is recovered from Landsbanki (now with the help of Britain’s Serious Fraud Office), the money must be paid in exports. But there has been no negotiation with Britain and Holland over just what Icelandic goods and services these countries would be willing to take in payment. more
Then there is Nick Leeson, the "rogue" trader who brought down the Barings Bank wondering why if he spent time in jail for his petty crimes, none of the big banksters have gone to jail for their MUCH larger crimes.
Column: Nick Leeson asks why no-one has gone to jail for the Irish banking collapse
By Nick Leeson
IN THE MOVIE made about my life, Ewan McGregor looks at himself in the mirror and says: “I, Nicholas Leeson, have lost $50 million in one day.” I can only be grateful to the people who made it that they chose one of my better days.
Unfortunately, the losses in the banking system that are being written down, and continue to be written down, far exceed that sum of money, as staggering as it is. Only yesterday, AIB announced yet another spectacular set of losses. These are unlikely to be the last.
As taxpayers, we are acutely aware that we have been burdened with the cost of the solution – if there is even a solution.
Restoring confidence to the beleaguered financial system is, we are told, of paramount importance.
Whatever you may think of the bailout package that exists at the moment, it does satisfy the need to restore liquidity and strength to the system. However, there are other important methods of restoring confidence to the system – and I’m sure like me, these are the ones that you are anxious will be pursued.
The concepts of responsibility and accountability exist in all walks of life. They are the cornerstones of the judicial system. When reputation has been damaged as badly as it has in this country over the banking system, we need those involved to accept responsibility and be held accountable. more
Chris Whalen may be a notorious right-winger but when someone complains of how little bailout money reached the real economy and how much went to banksters, his politics become pretty irrelevant.
Chris Whalen With Dylan Ratigan: Which Banks and How Much - Surprises From Bernanke's Forced Disclosure

And here is Dean Baker speculating about the "unthinkable"--an actual USA government default.
Defaulting on Debt Is Not the End of the World
Dean Baker | April 10, 2011 
The NYT had a piece on the implications of the United States hitting its debt ceiling and running the risk of defaulting on its debt. The article exclusively presented the views of people who portrayed hitting the debt ceiling and defaulting on the debt as being an end of world scenario.
It would have been useful to present the view of people who do not consider a default on the national debt to be the worst possible outcome. While there can be little doubt that a default on the U.S. debt would lead to a financial crisis and would likely permanently reduce the role of the U.S. financial industry in world markets, it is also likely the case that the United States would rebound and possible rebound quickly from a default.
The experience of Argentina may be instructive in this respect. Argentina defaulted on its debt at the end of 2001. Its economy fell sharply in the first quarter of 2002 but had stabilized by the summer and was growing strongly by the end of the year. By the end of 2003 it had recovered its lost output. Its economy continued to grow strongly until the world recession in 2009 brought it to a near standstill.
While there can be no guarantee that the U.S. economy would bounce back from the financial crisis following a default as quickly as did Argentina, it's unlikely that U.S. policymakers are too much less competent than those in Argentina.
Readers should be made aware of the fact that countries do sometimes default and they can subsequently recover and prosper. Many people may consider the short-term pain stemming from a debt default to be preferable to the long-term costs that might come from policies adopted to prevent default.
For example, if Congress were to approve a Medicare plan along the lines proposed by House Budget Committee Chairman Paul Ryan, this would be subjecting tens of millions of middle class retirees to a retirement without adequate health care insurance and potentially devastating medical bills. Plans being put forward to cut Social Security could have similar consequences. Compared to these outcomes, a financial crisis and the subsequent slump that follows may seem like a relatively small cost. more

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