Ok, so banks are tumbling in the US, and here too. Dutch-Belgium Bank-Insurer Fortis has been split and the Dutch part nationalized. The invoice for the tax payer, that’s me, is 16 billion Euros (22 billion USD. On 17 million inhabitants that is, babies included). But that is not what this entry is about. You know I like to write about connections between my “old world” and the US. Literally in between is Iceland. Iceland had an exploding growth of it’s bank system in the last couple of years, using a very (simplified) two step business model:
- Lend out money to the credit-hungry US.
- Acquire that money in Europe by bidding 0.25% more interest than EVERY competitor in the market.
Easy. Until, oh what a surprise, these contracts with the US banks proved less than rock solid, no repayments were made and darn, those people we promised that 5.25% would actually like to really receive that money. The #1, #2 and #3 banks have been nationalized in the last few days. The European guarantee legislation requires the member states to ensure at least the first 20.000 Euro ($28.000) per bank per person. Guess what? The Iceland economy has collapsed and there is no way they can cough up the money. The Icelandic administration has already indicated that yes there is a treaty and no there is no money. I bet if they are arm twisted in it, they will stall the process, pay out in Icelandic krones and then implode the currency. Wikipedia:
In October 2008, the Icelandic parliament passed emergency legislation to minimize the impact of the financial crisis of 2007-2008. Iceland may face national bankruptcy, because its bank assets are nine times annual gross domestic product of 14 billion Euros ($19 billion). On October 6, Prime Minister Geir Haarde gave an unprecedented address to the nation where he stated that the economy of the Icelandic banks were several times the size of Iceland’s GNP, and if they should collapse, a definite possibility, the entire nation could go bankrupt.
I have no sympathy for people who put all their apples in one basked, being a bank of a minute country that consistently promises more interest than the market. Banks can fail, d’uhhh. I have no sympathy for people who believe another countries administration will put their interests before those of their inhabitants. I have no sympathy for banks, period.
Added: An IMF delegation is on it’s way to Iceland, need I say more?
Added: From my country in this debacle alone: 1.6 billion Euro ($ 2.2 billion), 120.000 accounts