Iceland’s puts no end to this type of sagas

Sir I agree with Martin Wolf that having to pay for the Icesave cost the way it has been presented by the British and the Dutch governments is extraordinarily onerous and should not be imposed on future generations of Icelanders, “How the Icelandic saga should end” January 15.

Unfortunately I do not believe that the easier way out that Wolf hint at mentioning paying 90 percent of that money with the assets of Landsbanki is feasible as I am sure there has to be many other creditors lining up for the same purpose.

If I was Iceland, I would not try to solve something insolvable and would mostly at this moment just buy time, in the certainty that Iceland’s recent financial saga will soon be just another saga among many other similar tragic sagas.

Is Iceland´s debtor´s prison different from Argentina´s?

Sir Jóhanna Sigurdadóttir’s “Iceland are angry but will make sacrifices” August 14, writes about the problem of trying to make good “hundreds of thousands of UK and Dutch savers” who lost their money when attracted by high interest rates they place their money in a private bank in Iceland. 

I can’t help to think about the hundreds of thousands of probably much less sophisticated small Italian savers that lost their savings in Argentina… and I wonder are there some standards for responsible behaviour? 

There is no debtor´s prison for individuals but is there a debtor´s prison for countries even when given home for jail? Would the world be better off with some global standards that apply to all countries? 

And what about all those who lost their money because they followed the advice of the credit rating agencies, those appointed as the official risk sentries by the financial regulator in Basel?

Iceland: Financial System Stability Assessment—an Update completed August 2008.

Sir may I invite you to read: “The update to the Financial System Stability Assessment on Iceland"

It was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on August 19, 2008 and provided background information to the staff report on the 2008 Article IV consultation discussions with Iceland, which was discussed by the Executive Board on September 10, 2008, prior to the recent Board discussion on a Stand-By Arrangement for Iceland.”

It makes fascinating reading, especially in these times when the regulators now want to tackle systemic risks while ignoring that their regulations are in fact the prime source of systemic risk.

In it, dated a month before the crisis exploded at the end of September 2008, we can among other read the following: “The banking system’s reported financial indicators are above minimum regulatory requirements and stress tests suggest that the system is resilient. Bank capital averaged almost 13 percent of risk-weighted assets between 2003 and 2006, dropped to 12 percent in 2007 and to approximately 11 percent in the first half of 2008, but remain above the 8 percent minimum. Liquidity ratios are likewise above minimum levels. Notwithstanding the positive indicators, vulnerabilities are high and increasing, reflecting the deteriorating financial environment”

To me once again, this just proves that no one had the faintest idea of what the “risk-weighted assets” really meant and, if they did, they had no will to question the significance of risk-weighting.

Uncomfortably some answers are only ours to give.

Sir as a radical of the middle or an extremist of the centre I much agree with Martin Wolf in that “Keynes offers us the best way to think about the crisis” December 24. Having said that and not feeling I should be considered a “liquidationist” I yet believe that a tremendous amount of debris has to be cleared out from the system and that also some extensive tilting of the land is required before we expose our economies to any stimulus Tsunami. Can we bailout the past and still sow the seeds for the future is one of those hard questions that needs to be answered in that “spirit of humility and pragmatism” that Martin Wolf asks for.

On the first page of this same FT on Christmas in Iceland we read “There will be a lot of people who leave this country, just go away. Think of the future here for the children. When they are 95 they will still be paying for this“. Does Keynes have an answer on what to do about that? Probably not! The uncomfortable truth, and which is why most of us wear blinders, is that some answers are only ours to give.

PS. Since Martin Wolf wishes “to see the punishment of financial alchemist who claimed that ever more debt turns economic leas into gold” let me remind him that the prime ingredient in that alchemist formula was that the triple-A ratings were to be true, like the financial regulators believed they were… and therefore the market believed it too.

Why the British may be more careful falling in love with the euro.

Sir Wolfgang Münchau in “Why the British may decide to love the euro” November 17, makes some curious assumptions, first and foremost placing an equal sign between the dollar and the euro. The dollar is the currency of an already established country, with already established rules in how to handle the printing machines when in a crisis while Europe, whether we like it or not, is still a work in progress with little design on how to go about and print out Euros in order to fund European bail-outs.

Of course, a more accepted and wider used currency should in normal circumstances “offer more protection from speculative attack” than “a free floating offshore currency unit” (what a belittling way of referring to the historic pound sterling) but the fact is that current circumstances have very little to do with speculation and much to do with harsh realities.

Since Münchau in this context also brings up Iceland perhaps he could explain to us how much better off Iceland would have been had they used Euros instead of their Krona. As I see it Iceland would just have been able to run up quite a bit more leveraged debt, before all hell broke lose. Is that good?

At this junction one Pound Sterling gives a claim on a weakened but defined England while one Euro places a not completely defined claim on a not completely political Germany-and-Italy averaged Europe; and which of them might look stronger to the markets down the line, is yet to be seen.

Do we dare to answer?

Sir Thrainn Eggertsson in his “Long-term consequences may be ruinous for Iceland” October 28, is really asking us… “Is Iceland not better off following the Argentina route? If our sons and daughters were from Iceland, do we dare to answer that question?