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Thread: The view from Iceland..... Or how I learned to love letting the banks go bust

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    Default The view from Iceland..... Or how I learned to love letting the banks go bust

    A great interview with the President of Iceland..... Covers the moral hazard..... The brain drain that an overheated financial sector causes.... Criminal prosecution... And where Iceland is now.




    Capitalistic financial markets can exist in many other parts of the world, even without democracy. So in my opinion, Europe is and should be more about democracy than about financial markets. Based with this choice, it was in the end, clear that I had to choose democracy.
    But there were other issues at stake as well. What the British and the Dutch were arguing was that somehow the European banking system was such that a private bank would operate anywhere in Europe, and if it succeeded, the bankers got extraordinary benefits, the shareholders got big profits. But if it failed, the bill would simply be sent to ordinary people back home: farmers and fishermen, nurses and teachers, young people and old. And that, I maintain, is a very unhealthy formula for the future of the European banking system. If you sent a signal to the bankers that you can be as irresponsible and daring as you want to be, and if you are lucky, you become very rich, but if you fail, other people will pay.


    Read more: http://www.businessinsider.com/olafu...#ixzz23coZH3jf
    The country has been looted.

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    ^^^ 'stiffing' your creditors is much easier to do if, as was the case with Iceland, you are self-sufficient on energy and food production, you are a net exporter of manufactured goods and raw materials, etc. For countries where that is not the case, notably Greece, pissing off your creditors means no 'credit' for international purchases of imports thus no gasoline, no pharmaceuticals, no food etc.

    Also, being in control of your own currency means being able to legally 'steal' from the savings of your own citizens via deliberate reduction in the 'purchasing power' of that currency. For countries where that is not the case, notably Greece, the option to 'devalue' existing debt via currency 'purchasing power' destruction isn't an option.

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    The world will see the second comming of the Drachma.
    The country has been looted.

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    Indeed, the world will see the second coming of the Drachma. And, it should. Joining the Euro was a major mistake for Greece. Their economy was not well enough developed to operate within the Euro.

    The Germans would very much like to treat Greece as a German pauper to be loaned money to with the sure certainty that the money will be paid back when the pauper is back on his feet. However, that German model ignores the fact that the Germans, French, Americans etc. loaned Greece far too much money on the expectation that the Germans would ultimately repay what the Greeks borrowed. Unfortunately, no one got the German Volk to sign on to that deal.

    Now, the only viable option is for Greece to leave the Euro, endure a short, but very sharp recession and a bout of severe inflation that will come to a relatively quick end. Ultimately, the Greeks will benefit from leaving the Euro. It's like medicine that really tastes bad going down, but will ultimately cure the ailment.

    Z

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    Bad tasting medicine.... Is exactly what we should have done with the big banks..... Cut the cancer out.
    The country has been looted.

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    Joining the Euro was a major mistake for Greece
    I suppose this depends on one's point of view. From the point of view of 'working class' Greeks, joining the Euro meant enjoying a much higher standard of living than their 'real world' economic contribution was actually able to pay for. Returning to the Drachma will result in a permanent reversion to a lower standard of living. Iceland did not face a similar situation due to it's economic / energy self-sufficiency and ability to export raw materials, but the US, UK and other net importing countries potentially do if debt growth isn't reversed.

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    Ummm....permanently lowered standard of living is what the Greeks will have if they stay in the Euro on the current austerity plan.

    Z

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    Default Re: The view from Iceland..... Or how I learned to love letting the banks go bust

    ^^^ in reality, the Greek standard of living will permanently decline in either case, since no 'lender' ( bailout or otherwise ) is going to be willing to provide Greece with more money to spend in addition to the amount of 'value' they are actually capable of producing. If current and future spending cannot exceed current and future 'value' production, standard of living must decline.

    So the choice of remaining in the Euro while attempting to repay existing debt via austerity measures, versus returning to the Drachma and 'inflating away' existing debt, is more or less a calculated risk as to whether the distant future value of the Drachma can ever be restored. With the Icelandic Krone, Iceland's economy had a large export component, a large natural resources component, a large energy component etc. which created foreign demand for Krones as a mechanism to partially restore it's 'purchasing power' after the debt default. With Greek Drachma, there aren't many potential high demand Greek exports ... thus the Drachma devaluation could wind up being deep and permanent.

    The concept of foreign demand for a particular currency ( and what happens when foreign demand for a particular currency is lost ) is explored in a different context in the US Dollar Reserve Currency thread, but it also applies to Icelandic Krones and Greek Drachma
    Last edited by Melonie; 08-17-2012 at 02:30 AM.

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