Wednesday, February 2, 2011

Iceland Did It Right

In 2008 while the banks were failing, Congress passed a law that Bush signed to bail out the banks. Both Obama and McCain supported this banker bailout.

Ron Paul opposed any bailout and called for other type of reforms to remedy the crisis. Ron Paul also said, "I find it difficult to muster much sympathy for the CEO's of Lockheed Martin and Goldman Sachs."

In the US, the banks had huge bailouts which they leveraged to pay massive bonuses to their failed executives while continuing to use mark-to-fantasy accounting to cover up their imploding balance sheets. The banks haven't fixed their capital problems.

In terms of multiples of GDP, Iceland had a much larger bank problem than the US, and Iceland put the banks into receivership. This wiped out the owners and creditors of the banks, which is the proper and legal process. Just over a year later, Iceland had a stable economy and a rejuventated and sound banking system.

By bailing out the banks, the US and Ireland provided social welfare to failed bankers at the expense of the taxpayers. Iceland did the right thing.

Iceland Proves Ireland Did `Wrong Things' Sacrificing Taxpayers
Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.
With the economy projected to grow 3 percent this year, Iceland’s decision to let the banks fail is looking smart -- and may prove to be a model for others.
“If we’d guaranteed all the banks’ liabilities, we’d be in the same situation as Ireland,” says Arnason, whose Social Democratic Alliance was a junior coalition partner in the Haarde government.
By guaranteeing bank liabilities, Ireland faces a public debt burden as high as 12 times the country’s GDP. Iceland’s is about 85 percent.