Wall Street

[MMI]

From a speech by the Prime Minister of Iceland on Monday

Fellow Icelanders

The Government of Iceland, the Central Bank and the Financial Supervisory Authority have over the past days and weeks worked ceaselessly to find a solution to the enormous difficulties which threaten Icelandic banks, in good cooperation with the banks. Various parties have been involved in this work, for example the pension funds and representatives of the labour market. The Government has, for its part, aimed for the sale by Icelandic banks of foreign assets and a reduced presence abroad, so that the Icelandic state, so small in comparison with the Icelandic banks, would have the capacity to support them. We should bear in mind in this connection that the huge measures introduced by the US authorities to rescue their banking system represent just under 5% of GNP. The total economic weight of the Icelandic banks, however, is many times the GNP of Iceland.

Thus a decision on wide-ranging rescue measures for the Icelandic banks is not only a matter of tax payers shouldering a heavier load temporarily, but concerns the position and future of the Icelandic nation as a whole.

...

God bless Iceland.

Today in the UK, Icesave, an internet bank owned by Landsbanki Islands hf, stopped customer withdrawals and was taken into receivership (a step short of bankruptcy). Landsbanki itself has been taken under the control of the Icelandic government, which says that depositors will be fully protected. It is unclear whether that undertaking was intended to include non-Icelandic depositors: it should, but does it? The Prime Minister was vague. But is it a sign that individual nations will be forced to adopt "beggar-my-neighbour" policies to protect local interests?

The trouble is, Landsbanki isn't the only Icelandic bank in trouble. All of them are. And the liabilities of all the Icelandic banks exceed the total wealth of that country many times. In a word, Iceland is bust.

But with goodwill, careful husbandry of the country's resources, and a huge loan from Russia, it will survive.

Does anyone still need a sign that these problems aren't as bad as they are being made out to be? Is anyone still relaxed? Iceland may only be a small country, with a total population the size of a large city, but if it can go under, so can any other small country. Luxembourg, perhaps? And if enough small countries are unable to meet their debts, so, too can big countries.

The poll is closed now, and it is surprising how much the gap between the two positions closed as events unfolded. But, overall, it still shows a preference to let the banks sink or swim on their own. I wonder how much longer people will continue to hold that view.

Meanwhile, this was an interesting thread and I am glad we had the opportunity to challenge each other's views on it.