Iceland has always been at or near the top of places I would most like to visit. Bad news on Iceland today, though:
"The government of Iceland today became the first to be effectively brought down by the credit crunch.
After several nights of rioting over the financial crisis, Prime Minister Geir Haarde, surrendered to increasing pressure and called a general election for May.
A poll would not normally be held until 2011.
...The global financial crisis hit Iceland, which has a population 320,000, in October, triggering a collapse in its currency and financial system under the weight of billions of dollars of foreign debts incurred by its banks
The economy is set to shrink 10 percent this year and unemployment is surging.
...Protests had been held weekly since the crisis broke last year, but since Tuesday have been held every night.
On Thursday, police used teargas on demonstrators for the first time since protests against the North Atlantic island's entry into the NATO alliance in 1949.
Special forces had to rescue Haarde from his car after he was surrounded by an furious mob hurling eggs and cans outside the government offices, in Reykjavik.
...The seething crowd spattered the building with paint and yoghurt, yelling and banging pans, hurling fireworks and flares at the windows and even lighting a fire in front of the main doors."
Our' leadership better snap to it...with something that really works. Americans don't do paint and yoghurt.
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As far as protesting goes most Americans do not know how to protest or even have the guts for it, its to easy to say in America "let someone else do it I don't have the time."
Mr. Bernie Made-Off (with a lotta life's savings) has friends in high places...nothing get's thrown at him...least of all 'the book'.
Dunno, guys like Bernie make me pine nostalgically for guys like Danton and Robespierre.
Now we are set to increase that debt piranha...like pouring gasoline on a fire.
"ICELAND’S GOVERNMENT was heading the way of its economy last night after the departure of commerce minister Bjorgvin Sigurdsson, two days after embattled prime minister Geir Haarde announced his resignation.
Three months after Iceland’s banking system collapsed, ruining the island nation’s economy, it was unclear last night whether individual resignations and early elections in May will satisfy the growing ranks of middle-class protesters on the streets of Reykjavik.
After 16 weeks of calling for the entire government to go, peaceful protests turned into a riot last week in front of the Icelandic parliament, with police deploying tear gas – an unheard-of measure in normal times.
But these are far from normal times in this island nation, where everyone is feeling the economic meltdown triggered by the collapse of the country’s debt-burdened banks.
Unemployment rose 45 per cent between November and December last year, according to new figures, while 40 per cent of Icelandic households and 70 per cent of businesses are now classed as technically bankrupt."
more at: http://www.irishtimes.com/newspaper/world/2009/0126/1232923365959.html?digest=1
"Just a few short years ago, Iceland had much to be proud of. The good times were rolling so fast that one almost expected the country's almost round-the-clock summer daylight to last all year. Business was booming, society overfed, and the capital, Reykjavik, was in vogue as a travel destination for rich revellers, gastronomes and culture lovers.
Iceland is a country of dramatic natural beauty: lunar landscapes, spouting geysers, sheer glaciers and craggy volcanic rock formations; an impressive but inhospitable isle floating in mid-Atlantic isolation. When, in 2007, it topped the UN's Human Development Index for its high standard of living, literacy and life expectancy, the tiny community of 310,000 felt they had proved their educated, hard-working and resilient character on an international scale.
The previous year, America had abandoned its long-standing naval air station at Keflavik. Symbolically, the move set Icelanders free from more than seven centuries of foreign domination, first as a Norwegian and then a Danish colony, and for the past 65 years, less formally, under the wing of the US.
"The Vikings" had risen again, and this is the admiring title the country bestowed upon the small group of aggressive businessmen whose high-risk investing bloated the island's economy to 10 times its GDP, buying up chunks of the British and Continental European high streets in the process. French Connection, Debenhams, Karen Millen, Oasis, Warehouse, Mappin & Webb, Hamleys and many more fell into Icelandic ownership. So did West Ham United football club. When Icelanders visited Copenhagen, they would strut into its smartest department store to buy expensive fashions from "their" shop. Like many British chains, it too was owned by the "Viking" Jon Asgeir Johannesson's Baugur group: one in the eye for the mother country.
Few stopped to consider, let alone fret over, whether their swift financial ascent would end in an equally steep plunge into oblivion. They were too busy flying to Barcelona for dinner, opening smart boutique hotels, investing in art, planning massive public buildings and buying Range Rovers and Audi Q7s – Iceland is one of the top car-owning countries in the world.
In October, Iceland's three main banks were nationalised and declared bankrupt. Overnight, any Icelander – and there were many – who had bought these status vehicles or invested in luxury new properties with a foreign loan found the value of their purchases plummeting as repayments soared. The currency, the Krona, fell to one quarter its value before trading in it was suspended. Thousands of hard-working couples nearing retirement age had placed their life savings in stocks with the Landsbanki, Glitnir and Kaupthing banks which led the crash. For many, every penny disappeared into the turbulent waters which connect Iceland with its American and European neighbours.
Frugal Icelanders have been stung too. Food and petrol costs are rising all the time and with interest rates nearing 20 per cent, domestic mortgages, even modest ones, are becoming impossible to service.
"The feeling is we are unable to look after our own affairs" says Hallgrimur Helgason, one of the country's leading novelists. "We were on our own for years and we went too far, too fast, in too little time. We behaved like children and the first thing we did when the stock market opened 10 years ago was go to London and buy toy stores and candy stores. Now we are bankrupt and there will be no money for years to come and we have more debts than we can ever repay.
"We're just like kids whose parents went away for the weekend and we trashed the entire house."
There is no word from the government yet on how it plans to repair the damage. What does that mean for the man on the streets of a country whose coffers are empty? Are we talking soup kitchens, sheltered housing and begging on street corners? Far from it. If you're as comfortable as Iceland was, the rot has its work cut out before it emerges on the surface.
The streets of the capital are clean and the people could not be more hospitable or charming. On Friday and Saturday nights, a succession of bars and clubs are packed out. Judging by the drunken state of most people, they are still spending money here.
Iceland's troubles did reveal themselves during last week's tumultuous events. Peaceful demonstrations began in Reykjavik's main square, outside the Althing (parliament) building, had begun in October immediately after the crash. Last week they erupted in the worst riots since it became a founding member of Nato in 1949. Rocks were hurled at police and the Althing. Its windows were smashed and the building set alight. Over 130 protesters received treatment after police used tear gas to disperse the crowd, and one police officer was seriously injured.
On Friday morning, human rights campaigner and protest organiser Hordur Torfason told a chilling anecdote to illustrate the desperation many Icelanders are feeling. He had received a phone call from a man who said that four generations of his family had lost everything. "He wanted me to help them build a gallows in front of the parliament building," says Torfason. "I asked him if this was to have some symbolic significance. 'No,' came the answer. 'A member of my family wants to hang himself in public.'"
"I said I would help them but not in this way," says Torfason. "But he killed himself two days ago."
Red Cross employees and volunteers are working overtime to prepare for depression and desperation. The relief agency has expanded and is setting up support groups and activities for the unemployed. "One of the effects of long-term unemployment is depression," says the agency's Thor Gislason.
More people are attending church, he says, not just for spiritual succour, but because food is sometimes provided for a nominal charge. Soup kitchens, emblematic of Eastern bloc poverty, might be going too far. "We believe people will be too ashamed to stand in line publicly for food," says Gislason, "so we will organise activities and volunteer work where food is involved instead."
Icelanders are known for their love of good food. Now is the beginning of a month when people celebrate local cuisine by dining out on traditional dishes, but one smart restaurant with a menu featuring pickled whale blubber, whale sushi and peppered whale steaks, cod liver, pickled herring, smoked puffin breast, reindeer meat and caviar, is empty save a handful of foreign diners. Panorama, a new gourmet restaurant on the top floor of the Centerhotel Arnarhvoll, has magnificent views over Reykjavik's harbour but is equally subdued. Over in Reykjavik's 101 Hotel, owned by the "Viking" tycoon Jon Asgeir Johannesson and renowned as a favourite haunt of champagne-loving Kaupthing bankers, there are a few suits and little else.
As many as 8,000 people braved the damp cold to demonstrate last week, the largest number to attend a public protest in the history of Iceland. On Friday, the Prime Minister, Geir Haarde, who has cancer, called an election for9 May and announced that he will not run again. Yet protesters called for his immediate resignation on Saturday. The government's efforts amount to too little, too late, they say. They want parliament dissolved, a new constitution, and an investigation of those politicians they believe accountable. "Every other person is basically bankrupt," said organiser Magnus Bjorn Olafsson. "This is a revolution and we want to create a new constitution like the French did."
All walks of life were evident at the protests; well-heeled Icelanders with their designer coats and dogs were as prevalent as any other group. For many, like Gudbjorg Bjornsdottir, 47, and Runar Mar Sverisson, 50, it was their first experience of protesting. "We thought it was time we showed our support," says Bjornsdottir, "It is not enough to sit at home. We are not here for our personal situation but for the injustice."
Asgerdur Einarsdottir, 43, attended a party last week attended mostly by architects and graphic designers. She was the only one there to have a job. She works in Iceland's remaining steady industry, tourism, for a tour operator which provides visitors with thrills such as snowmobiling up a glacier or driving through lava fields.
Before the crash, Iceland was prohibitively expensive. It is now far more accessible to foreigners but the running costs of her firm, owned by the parents of Barcelona striker Eidur Gudjohnsen, have gone up 110 per cent, and they are losing the lucrative business of indulgent corporate jollies.
On Reykjavik's main shopping street, Laugavegur, bargains are suddenly to be found: in Saevar Karl, a designer department store, most items are 40 per cent off. Its manager, Tomas Tomasson, notes that Iceland is now the cheapest place in the world to buy Prada.
Everyone blames greed, political corruption and lack of financial regulation for the mess, but most know they must share responsibility. "I feel partly to blame myself," admits writer Helgason. "We admired the brashness of the Vikings and we all got carried away. We are a young and immature society."
Torfason says: "Things are bad and they will get much worse. But it is unlikely anyone will starve. There are people with no fixed address here, but none on the street; you would freeze to death. There is no call to be desperate. We are small but we have resources."
This much is true. The seas are full of fish, geothermal energy and natural gas are abundant. Oil prospecting is beginning. But there is a risk that Iceland will give its riches away in a fire sale to the same Vikings who have already half-sunk the nation once.
Iceland has survived famine, volcanic eruptions and smallpox before. Now it must confront the fact that it has been blighted by a man-made disaster.
Iceland: The facts
*Population: 313,376
*Currency: Icelandic Krona (ISK)
*Unemployment in October 2008 1.9%; January 2009: 7%. Expected to rise to 8.6% in 2010.
*Inflation: 13.1%
*Interest rates 18%
*GDP per capita in 2007: $42,000
*GDP per capita now: $39,400
*The world's eighteenth largest island, Iceland has nearly 5,000km of coastline.
*Iceland's natural resources include geothermal power and diatomite, many rivers and waterfalls are used for hydroelectricity.
*Did not gain full independence from Denmark until 1944. Granted limited home rule in 1874.
*Althing, the Icelandic parliament, is the oldest functioning legislative assembly in the world, which was established in 930.
*In 2007 Iceland was ranked the most developed country in the world by the UN.
*The Apollo 11 astronauts trained in Iceland because of the terrain's similarity to the moon.
http://www.independent.co.uk/news/world/europe/meltdown-iceland-on-the-brink-1515753.html
Iceland's Government Falls Amid Crisis
Iceland's coalition government has fallen in the wake of the country's financial crisis.
Prime Minister Geir Haarde said he would hand in his resignation to the president.
"I really regret that we could not continue with this coalition. I believe that that would have been the best result," he said.
Mr Haarde's government, a coalition between his Independence Party and the Social Democratic Alliance, has been under pressure since the global financial crisis hit Iceland in October.
It ended a decade of rising prosperity in the country in a matter of days by triggering a collapse in the currency and financial system.
Meanwhile, the latest demonstrations in the capital Reykjavik were largely calm but police held five people for vandalism after a small group protested outside the central bank.
Protests have been held regularly since the crisis started."
http://uk.news.yahoo.com/4/20090126/twl-iceland-s-government-falls-amid-cris-41f21e0.html
"DAVOS, Switzerland: As the U.S. Congress looks for ways to expand President Barack Obama's $819 billion economic stimulus package, the rest of the world has an urgent message to convey: Tell us how you are going to pay for it without drowning the world in debt.
Few observers here at the World Economic Forum debate the need to restart America, the world's largest economy, with a package that could hit $1 trillion over two years. But the long-term danger of increased borrowing by the U.S. government, and its potential to drive up inflation and interest rates around the world, seems to be getting more attention in Switzerland than in Washington.
"The U.S. needs to show some proof they have a plan to get out of the fiscal problem," said Ernesto Zedillo, the former Mexican president who helped steer his country through a financial crisis of its own in 1994. "We, as developing countries, need to know we won't be crowded out of the capital markets, which is already happening."
Unlike other countries in a financial jam, Zedillo added, Washington has the option of simply printing more money, since the dollar is a reserve currency for the rest of the world. But over the long run that could force long-term interest rates higher and drive down the value of the dollar, undermining the unique benefits that come with the U.S. currency's special status.
Until now, most of the fears about surging government debt have focused on borrowing by European countries like Spain, Greece and especially Britain, which is in the midst of its own huge bank bailout. That recently pushed the pound to a 23-year low against the dollar, and prompted some Londoners to wonder whether their city was turning into "Reykjavik-on-Thames" - an allusion to Iceland's financial meltdown.
While the dollar's status as refuge in a time of turmoil should prevent that kind of sell-off for now, one expert after another warned that if fundamental factors like the lack of U.S. savings and bloated budget deficits did not change, the dollar could also fall sharply in value.
...While the focus in Washington has been on how much the stimulus package will attract broader political support before it comes up for a vote in the Senate, in Davos the talk was about the avalanche of U.S. Treasury debt needed to pay for it, as well as the $700 billion Troubled Asset Relief Program, or TARP, and other rescue measures approved last autumn.
The stimulus was approved by the House of Representatives on Wednesday without any Republican support, and could grow even larger, most likely in the form of additional tax cuts, to attract a bipartisan coalition.
U.S. officials insist they are aware of the challenge.
On Thursday afternoon here, a top White House adviser, Valerie Jarrett, promised that once the stimulus plan achieved its intended effect, the United States would "restore fiscal responsibility and return to a sustainable economic path." Jarrett, a longtime confidante of both Obama and his wife, Michelle, is the highest-ranking administration official to come to Davos.
NOTE: This is the same Valerie Jarrett from the Bagojevich Scandal...she and Rahm Emmanuel are up to their' neck in it. The Democrats are shielding them for the moment by trying to get rid of Blago as soon as possible.
"Even before Obama walked through the White House door, there were plans for $1 trillion of new debt," said Niall Ferguson, a historian at Harvard who has studied past patterns of borrowing and its impact on national power. He now estimates that some $2.2 trillion in new government debt will be issued this year, assuming the stimulus plan is approved.
"You either crowd out other borrowers or you print money," Ferguson added. "There is no way you can have $2.2 trillion in borrowing without influencing interest rates or inflation in the long term."
Ferguson added that he was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of debt at all levels, from individual homeowners with subprime mortgages to Wall Street banks who let their balance sheets balloon.
"This is a crisis of excessive debt, which reached 355 percent of American gross domestic product," he said. "It cannot be solved with more debt."
http://www.iht.com/articles/2009/01/29/business/borrow.4-419037.php?WT.mc_id=newsalert
"REPUBLICANS IN the US House of Representatives have defended their decision to vote against a massive economic stimulus plan, despite a White House warning that they will pay a political price for opposing President Barack Obama’s top legislative priority.
The $820 billion package of spending measures and tax cuts – worth more than the combined cost so far of the wars in Iraq and Afghanistan – was approved by the House on Wednesday night.
However, not one Republican voted in favour of the Bill, and 11 conservative Democrats broke ranks to vote against it.
The unanimous Republican opposition to the Bill came despite Mr Obama’s energetic courtship of the opposition party in recent days and represents a rebuke to his call for a new spirit of bipartisanship in Washington. “I do believe that there will be people in districts all over the country that will wonder why, when there’s a good Bill to get the economy moving again, why we still seem to be playing political gotcha,” White House press secretary Robert Gibbs said after the vote."
NOTE: 'when there’s a good Bill to get the economy moving again'...that's the problem right there...it is not a 'good bill'! As stated succinctly in the previous update:
"Ferguson added that he was particularly struck by the new borrowing because the roots of the current crisis lay in an excess of debt at all levels, from individual homeowners with subprime mortgages to Wall Street banks who let their balance sheets balloon.
"This is a crisis of excessive debt, which reached 355 percent of American gross domestic product," he said. "It cannot be solved with more debt."
http://www.iht.com/articles/2009/01/29/business/borrow.4-419037.php?WT.mc_id=newsalert
"In a message to Republican congressmen yesterday, however, House minority leader John Boehner praised their vote as a stand against wasteful spending of taxpayers’ money.
“By standing united, we offered hope to struggling families and small businesses across America looking to Washington for real solutions to the challenges they face,” he said. “The vote last night sent a clear, powerful and bipartisan message to congressional Democratic leaders about the current version of the economic stimulus package – the American people deserve better.
“The current product isn’t good enough.”
http://www.irishtimes.com/newspaper/world/2009/0130/1232923375603.html?digest=1
"California State Controller John Chiang announced on January 26 that California’s bills exceed its tax revenues and credit line and that the state is going to print its own money known as IOUs. The template is already designed.
Instead of receiving their state tax refunds in dollars, California residents will receive IOUs. Student aid and payments to disabled and needy will also come in the form of IOUs. California is negotiating with banks to get them to accept the IOUs as deposits.
California is often identified as the world’s eighth largest economy, and it is broke.
A person might think that California’s plight would introduce some realism into Washington, DC, but it has not. President Obama is taking steps to intensify the war in Afghanistan and, perhaps, to expand it to Pakistan.
Obama has retained the Republican warmongers in the Pentagon, and the US continues to illegally bomb Pakistan and to murder its civilians. At the World Economic Forum at Davos this week, Pakistan’s prime minister, Y. R. Gilani, said that the American attacks on Pakistan are counterproductive and done without Pakistan’s permission. In an interview with CNN, Gilani said: “I want to put on record that we do not have any agreement between the government of the United States and the government of Pakistan.”
How long before Washington will be printing money?
On January 28 Obama announced his $825 billion bailout plan. This comes on top of President Bush’s $700 billion bailout of just a few months ago.
Obama says his plan will be more transparent than Bush’s and will do more good for the economy.
As large as the bailouts are--a total of $1.5 trillion in four months--the amount is small in relation to the reported size of troubled assets that are in the tens of trillions of dollars. How do we know that by June there won’t be another bailout, say $950 billion?
Where will the money come from?
Obama’s bailout plan, added to the FY 2009 budget deficit he has inherited from Bush, opens a gaping expenditure hole of about $3 trillion.
Who is going to purchase $3 trillion of US Treasury bonds?
Not the US consumer. The consumer is out of work and out of money. Private sector credit market debt is 174% of GDP. The personal savings rate is 2 percent. Ten percent of households are in foreclosure or arrears. Household debt-service ratio is at an all-time high. Household net worth has declined at a record rate. Housing inventories are at record highs.
Not America’s foreign creditors. At best, the Chinese, Japanese, and Saudis can recycle their trade surpluses with the US into Treasury bonds, but the combined surplus does not approach the size of the US budget deficit.
Perhaps another drop in the stock market will drive Americans’ remaining wealth into “safe” US Treasury bonds.
If not, there’s only the printing press.
The printing press would turn a deflationary depression into an inflationary depression.
Unemployment combined with rising prices would be a killer.
Inflation would kill the dollar as well, leaving the US unable to pay for its imports.
All the Obama regime sees is a “credit problem.” But the crisis goes far beyond banks’ bad investments. The United States is busted. Many of the state governments are busted. Homeowners are busted. Consumers are busted. Jobs are busted. Companies are busted.
And Obama thinks he has the money to fight wars in Afghanistan and Pakistan.
Except for the superrich and those banksters and CEOs who stole wealth from investors and shareholders, Americans have suffered enormous losses in wealth and income.
The stock market decline has destroyed about 45% of their IRAs, 401Ks, and other equity investments. On top of this comes the decline in home prices, lost jobs and health care, lost customers. The realized gains in mutual funds and investment partnerships, on which Americans paid taxes, have been wiped out.
The government should give those taxes back.
Americans who have seen their retirement savings devastated by complicity of government regulators and lawmakers with financial gangsters should not have to pay
any income tax when they draw on their pensions.
The financial damage inflicted on Americans by their own government is as great as would be expected from foreign conquest. While Washington “protected” us from terrorists by fighting pointless wars abroad, the US economy collapsed.
How can President Obama even think about fighting wars half way around the world while California cannot pay its bills, while Americans are being turned out of their homes, while, as Business Week reports, retirees will work throughout their retirement (which assumes that there will be jobs), while careers are being destroyed and stores and factories shuttered.
Americans are facing tremendous unemployment and hardship. Obama doesn’t have another dollar to spend on Bush’s wars.
Taxpayers are busted. They cannot stand another day of being milked by the military-security complex. The US government is paying private mercenaries more by the day than the monthly checks it is providing to Social Security retirees.
This is insanity.
The banksters robbed us twice. First it was our home and stock values. Then the government rewarded the banksters for their misdeeds by bailing out the banksters, not their victims, and putting the cost on the taxpayers’ books.
The government has also robbed the taxpayers of $3 trillion dollars to fight its wars. About $600 billion are out of pocket costs, and the rest is on the taxpayers’ books.
When foreign creditors look at the debt piled on the taxpayers’ books, they don’t see a good credit risk.
Washington is so accustomed to ripping off the taxpayers for the benefit of special interests that the practice is now in the DNA. While bailouts are being piled upon bailouts, wars are being piled upon wars.
Before Obama gets in any deeper, he must ask his economic team where the money is coming from. When he finds out, he needs to tell the rest of us."
http://www.informationclearinghouse.info/article21867.htm
"THE EUROPEAN Commission has suggested Iceland could be fast-tracked for EU membership, opening up the possibility that it could join the union in 2011.
EU enlargement commissioner Olli Rehn said yesterday the country, which suffered a financial collapse last year, shared many of the values of the union and could potentially be allowed to join with Croatia, which expects to become the 28th member state in 2011.
“The EU prefers two countries joining at the same time rather than individually. If Iceland applies shortly and the negotiations are rapid, Croatia and Iceland could join the EU in parallel,” Mr Rehn told the Guardian.
“On Iceland, I hope I will be busier. It is one of the oldest democracies in the world and its strategic and economic positions would be an asset to the EU,” said Mr Rehn, the Finnish nominee to the EU executive and a strong supporter of Iceland joining.
Iceland’s government collapsed this week amid continuing public protests sparked by the collapse of the country’s banking sector, which has forced the Nordic state to take a $10 billion IMF-led rescue package. Prime minister Geir Haarde of the Independence Party stepped down on Monday, the first political casualty as a direct result of the global credit crunch. Public support for EU membership has risen as a result of the economic collapse, with some politicians calling for entry to the euro zone.
Johanna Sigurdardottir, leader of the Social Democratic party, is in talks with the Left-Green Party about forming a new administration. The Social Democrats support an application for EU membership, but the Left-Greens are sceptical. However, both parties believe there should be a referendum on whether to open EU accession talks. The biggest hurdle to membership is having to sign up to the common fisheries policy.
Iceland is already a member of the European Economic Area, which means that it already adheres to roughly two-thirds of EU legislation. EU officials say this could speed up its accession talks to join the union and enable the country to catch up with the most advanced candidate Croatia.
But commission president José Manuel Barroso sounded a note of caution yesterday, saying that so far the EU had not received an application from Iceland.
But he also stressed the common bonds between Iceland and the union.
“Iceland is a very friendly country – a member of the European economic space,” said Mr Barroso, who noted more and more countries were considering the benefits of EU membership because of the crisis.
The prospects for any application by Iceland could be helped by the Czech Republic – the current president of the EU – and Sweden, which takes over the presidency in July.
Both countries are firm supporters of further EU enlargement.
However, Croatia and Iceland’s bid to join the union could also depend on whether Ireland ratifies the Lisbon Treaty in a second referendum. France and Germany both say there can be no more enlargement until the EU’s institutional structure is worked out."
http://www.irishtimes.com/newspaper/world/2009/0131/1232923379516.html?digest=1
"Reminding politicians of the discontent that helped topple the previous centre-right prime minister, Geir Haarde, the first leader to fall as a direct result of the global crisis, some 2,000 people again demonstrated outside parliament.
The crisis, sparked after Iceland's fast expanding banks collapsed under a weight of debt, forced Iceland to take a $10 billion (6.8 billion pound) International Monetary Fund-led rescue package and caused widespread anger.
Inside parliament, the Social Democrat Alliance and Left-Green Party, planning to form the new government, eventually secured the support of the Progressive Party, whose backing for the planned minority coalition is vital.
"If everything goes as planned now a new government will take over on Sunday afternoon," Steingrimur Sigfusson, head of the Left-Green party, told reporters after the Progressive Party announced it would back the new government.
The new prime minister is to be Johanna Sigurdardottir, of the Social Democratic Alliance and welfare minister in the outgoing government.
She is to become the first openly gay leader in the world.
The full cabinet list will not be formally announced until Sunday at about 12 p.m., after the Social Democrat Alliance's central committee has met to approve the government deal.
A formal hand-over of power by the president from the old government would take place later.
Sigfusson said the government would propose April 25 for an early parliamentary election, a key demand of demonstrators.
SEEKING CHANGE
Haarde of the Independence Party quit on Monday after weeks of protests, which eventually turned violent.
A fresh, peaceful, demonstration was held on Saturday, with some calling for wider change, not just a shift in government.
Proposals have been made for a constitutional assembly that would overhaul the basic law, including a clearer divide between the executive and the legislature.
"You should be proud of yourselves, coming here weekend after weekend," one of the organisers, Hordur Torfason, shouted.
"The current political system is done for, what we want is a new grassroots organisation that will come and take power," said Einar Indridason, 40, attending the demonstration.
The new government wants to remove the central bank head, who was strongly criticised for failing to foresee the crisis.
The coalition is likely to have to tackle the issue of whether or not to start talks on entering the European Union, about which Iceland has long been cautious, but for which support has grown during the crisis.
The Social Democrats back EU entry, while the more cautious Left-Greens have said they may support a referendum on talks. Sigfusson has also backed a renegotiation of the IMF loan."
http://uk.news.yahoo.com/22/20090131/tpl-uk-iceland-c31991c.html
"Thousands of opposition supporters marched in Moscow and the Russian far east port of Vladivostok on Saturday during a national day of protest over hardships caused by the global financial crisis.
The pro-Kremlin United Russia party also drew thousands to rallies in support of government anti-crisis measures.
Nearly every major city had a street rally, making it a public action of unusual scale for the vast country. Though the protesters were relatively few in number, the Kremlin is sensitive to public criticism of its policies.
In the Pacific port of Vladivostok, the Communist Party led around 2,000 peaceful protesters, some carrying banners that read "Kremlin, we are against you," on an unsanctioned march under the watchful eye of police.
Last month, riot police in Vladivostok, where protests broke out over used car import tariffs imposed to defend domestic automakers, detained 100 people in a crackdown that highlighted official sensitivity to growing anger over the efficacy of its efforts to tackle the slowdown.
By sanctioning some protests the authorities appeared to acknowledge a need for the public to express its anger over hardships caused by rising unemployment and the rouble's fall against the dollar.
"We are against capitalism," said Nikolai Nikolayevich, 61, a former Defence Ministry worker at a 300-strong Communist rally in central Moscow. "But we are not radicals."
However, the authorities moved against unsanctioned protests by small opposition groups, arresting a prominent radical and 40 others in Moscow.
Writer Eduard Limonov, head of the outlawed National Bolshevik Party, and around 10 party activists were held after attempting to join an authorised Communist Party march.
A few kilometres (miles) away, some 100 members of chess champion Garry Kasparov's United Civic Front and allied liberal groups were attacked by young men wearing surgical masks and wielding flagpoles, a Reuters witness said.
ECONOMIC PROBLEMS
Some of the protesters were bloodied in the fight. Minutes after they began dispersing, riot police arrived and began detaining those they suspected of taking part in the unsanctioned demonstration.
Forty-one people, including Limonov, were detained during the protests. He was due to appear in court on Saturday before being released, the head of the Moscow City Interior Ministry's Information Department, Viktor Biryukov, said by telephone.
Among those arrested were National Bolsheviks attending the Communists' demonstration and people in the area of the "March of Discontent" by Kasparov's allies, he said.
Limonov and Kasparov, at opposite ends of the political spectrum, are leaders of a coalition of small, scattered opposition groups called The Other Russia.
"The most important thing is solidarity," Denis Bilunov, executive director of Kasparov's United Civic Front, told Reuters by telephone.
He said his group had been in contact with protest organisers in the far east and would send representatives to Vladivostok.
In a separate protest that was also unauthorised, about 20 Limonov supporters, holding flares and setting off smoke bombs, rallied near a suburban Moscow metro station where a party member was found dead earlier this month.
Russian television coverage focussed on efforts by United Russia, a Kremlin-backed political party, to counter the anti-government protests by organising rallies in support of the government bailout efforts in Russia's cities.
Around 3,000 people attended United Russia's rally in Vladivostok, most of them students and pensioners, doctors and teachers whose salaries are financed by budget money.
The government has pledged to spend over a trillion roubles to support the economy, which has been hit by mounting job losses and a fast-weakening rouble.
The currency has lost over a fifth of its value since November to adjust to a dive in commodity and oil prices."
http://uk.news.yahoo.com/22/20090131/tpl-uk-russia-protest-d1a0d5d.html
"In fact, Jan Brewer, the newly appointed Governor of Arizona has a major crisis on her hands, one that Arizona and national media isn’t covering. The alarming news is the State of Arizona has 90 to 120 days before they completely run out of money. After that, all bills and tax refunds owed to the citizens will go unpaid.
Before Janet Napolitano left for her new Homeland secretary position, she had a stand-off with Arizona Treasurer Dean Martin. The AZ Treasurer forewarned Napolitano about Arizona’s financial crisis, but she refused to heed his words.
With neighboring California on the verge of bankruptcy this year, many States will follow in their steps.
Many States are already scurrying to cut unwanted costs, cut State-funded programs, raise taxes, not issue tax refunds to their citizens, and borrow money just to survive in 2009. Unfortunately, many banks — the same banks the Fed bailed out — are refusing to loan money to the States and their Treasury agencies.
The article, State Budget Troubles Worsen, at the Center on Budget and Policy Priorities website is an excellent piece to read. It shows where each State currently stands in these challening economic times, and you see 46 of the 50 States are clearly in the financial red.
It’s very possible you’ll see the end of the United States as we know it. If the Fed doesn’t bailout the States when their cash dries up and the banks don’t loan them money, then our States will be left in financial ruin. This would be a tragic and unprecedented event never experienced in the United States.
No State has ever filed bankruptcy, but it could be coming to a State near you this year.
We are on the brink of something far worse than the Great Depression."
http://freedomarizona.wordpress.com/2009/01/30/46-of-50-states-could-file-bankruptcy-in-2009-2010/
State Budget Troubles Worsen
http://www.cbpp.org/9-8-08sfp.htm
"Governments Across Europe Tremble As Angry People Take To The Streets
France paralysed by a wave of strike action, the boulevards of Paris resembling a debris-strewn battle?eld. The Hungarian currency sinks to its lowest level ever against the euro, as the unemployment ?gure rises. Greek farmers block the road into Bulgaria in protest at low prices for their produce. New ?gures from the biggest bank in the Baltic show that the three post-Soviet states there face the biggest recessions in Europe.
It's a snapshot of a single day – yesterday – in a Europe sinking into the bleakest of times. But while the outlook may be dark in the big wealthy democracies of western Europe, it is in the young, poor, vulnerable states of central and eastern Europe that the trauma of crash, slump and meltdown looks graver.
Exactly 20 years ago, in serial revolutionary rejoicing, they ditched communism to put their faith in a capitalism now in crisis and by which they feel betrayed. The result has been the biggest protests across the former communist bloc since the days of people power.
Europe's time of troubles is gathering depth and scale. Governments are trembling. Revolt is in the air.
Athens
Alexandros Grigoropoulos, a 15-year-old middle-class boy going to a party in a rough neighbourhood on a December Saturday, was the first fatality of Europe's season of strife. Shot dead by a policeman, the boy's killing lit a bonfire of unrest in the city unmatched since the 1970s.
There are many wellsprings of the serial protests rolling across Europe. In Athens, it was students and young people who suddenly mobilised to turn parts of the city into no-go areas. They were sick of the lack of jobs and prospects, the failings of the education system and seized with pessimism over their future.
This week it was the farmers' turn, rolling their tractors out to block the motorways, main road and border crossings across the Balkans to try to obtain better procurement prices for their produce.
Riga
The old Baltic trading city had seen nothing like it since the happy days of kicking out the Russians and overthrowing communism two decades ago. More than 10,000 people converged on the 13th-century cathedral to show the Latvian government what they thought of its efforts at containing the economic crisis. The peaceful protest morphed into a late-night rampage as a minority headed for the parliament, battled with riot police and trashed parts of the old city. The following day there were similar scenes in Vilnius, the Lithuanian capital next door.
After Iceland, Latvia looks like the most vulnerable country to be hammered by the financial and economic crisis. The EU and IMF have already mounted a €7.5bn (£6.6bn) rescue plan but the outlook is the worst in Europe.
The biggest bank in the Baltic, Swedbank of Sweden, yesterday predicted a slump this year in Latvia of a whopping 10%, more than double the previous projections. It added that the economy of Estonia would shrink by 7% and of Lithuania by 4.5%.
The Latvian central bank's governor went on national television this week to pronounce the economy "clinically dead. We have only three or four minutes to resuscitate it".
Paris
Burned-out cars, masked youths, smashed shop windows, and more than a million striking workers. The scenes from France are familiar, but not so familiar to President Nicolas Sarkozy, confronting the first big wave of industrial unrest of his time in the Elysée Palace.
Sarkozy has spent most of his time in office trying to fix the world's problems, with less attention devoted to the home front. From Gaza to Georgia, Russia to Washington, Sarkozy has been a man in a hurry to mediate in trouble spots and grab the credit for peacemaking.
France, meanwhile, is moving into recession and unemployment is going up. The latest jobless figures were to have been released yesterday, but were held back, apparently for fear of inflaming the protests.
Budapest
A balance of payments crisis last autumn, heavy indebtedness and a disastrous budget made Hungary the first European candidate for an international rescue. The $26bn (£18bn) IMF-led bail-out shows scant sign of working. Industrial output is at its lowest for 16 years, the national currency - the forint - sank to a record low against the euro yesterday and the government also announced another round of spending cuts yesterday.
So far the streets have been relatively quiet. The Hungarian misery highlights a key difference between eastern and western Europe. While the UK, Germany, France and others plough hundreds of billions into public spending, tax cuts, bank bailouts and guarantees to industry, the east Europeans (plus Iceland and Ireland) are broke, ordering budget cuts, tax rises, and pleading for international help to shore up their economies.
The austerity and the soaring costs of repaying bank loans and mortgages taken out in hard foreign currencies (euro, yen and dollar) are fuelling the misery.
Kiev
The east European upheavals of 1989 hit Ukraine late, maturing into the Orange Revolution on the streets of Kiev only five years ago. The fresh start promised by President Viktor Yushchenko has, though, dissolved into messy, corrupt, and brutal political infighting, with the economy, growing strongly a few years ago, going into freefall.
Three weeks of gas wars with Russia this month ended in defeat and will cost Ukraine dearly. The national currency, at less than half the value of six months ago, is akin to the fate of Iceland's wrecked krona. Ukrainians have been buying dollars by the billion. In November the IMF waded in with the first payments in a $16bn rescue package.
The vicious power struggles between Yushchenko and the prime minister, Yuliya Tymoshenko, are consuming the ruling elite's energy, paralysing government and leaving the economy dysfunctional. Russia is doing its best to keep things that way.
Reykjavik
Proud of its status as one of the world's most developed, most productive and most equal societies, Iceland is in the throes of what is, by its staid standards, a revolution.
Riot police in Reykjavik, the coolest of capitals. Building bonfires in front of the world's oldest parliament. The yoghurt flying at the free market men who have run the country for decades and brought it to its knees.
An openly gay prime minister takes over today as head of a caretaker government. The neocon right has been ditched. The hard left Greens are, at least for the moment, the most popular party in the small Arctic state with a population the size of Bradford.
The IMF's bailout teams have moved in with $11bn. The national currency, the krona, appears to be finished. Iceland is a test case of how one of the most successful societies on the globe suddenly failed."
http://www.guardian.co.uk/business/2009/jan/31/global-recession-europe-protests
"EUROPE FACES greater social unrest unless co-ordinated measures are quickly taken to solve the global economic crisis and to stop countries resorting to protectionism, France’s finance minister has warned.
Speaking at the Davos economic forum on Saturday, Christine Lagarde said that government leaders needed to send a clear signal to ordinary people about how governments intended to act.
“We’re facing two major risks: one is social unrest and the second is protectionism,” she said. “We need to restore confidence in the systems and confidence at large.”
Her comments came as protests were held in Davos and Geneva against the World Economic Forum’s annual meeting in the Swiss Alpine town. At a small protest in Davos, demonstrators held up a banner reading, “You are the crisis”, and threw snowballs at security guards. Sixty were arrested in Geneva.
Asked by The Irish Times whether countries would take radical, individual measures, similar to Ireland’s bank guarantee in September, without an international solution, Ms Lagarde said: “It is going to be different from one country to the other simply because the banks are not exactly in the same situation.”
She said that co-ordinated action needs to be taken at the London meeting of the G20 group on April 2nd.
Speaking in Davos on Saturday, British prime minister Gordon Brown said that banks were reducing lending in their overseas operations and retreating to their home businesses.
Asked about fears of nationalising Royal Bank of Scotland, owner of Ulster Bank, and how it could be reversed later, Mr Brown said: “This is not about whether you nationalise a bank or what the share structure of a bank is. This is about the resumption of lending.”
Speakers in Davos warned of fears of financial protectionism as banks focus on domestic lending and governments struggle to contain the economic aftershocks of the financial meltdown.
Bank of Ireland recently announced a dramatic reduction in its UK lending as it cuts borrowing in the international money markets while continuing to grow lending in Ireland.
Concerns were expressed that measures taken to reflate domestic economies, such public lending programmes that favour local borrowers, could contribute to a contraction in world trade.
“We see more and more signs that these protectionist measures . . . fall within some sort of ideology of economic nationalism,” said Celso Amorim, Brazil’s foreign minister. “This could bring us back to the 1930s again.”
Pascal Lamy, director general of the World Trade Organisation, said that the conclusion of the stalled Doha round of talks on a world trade agreement by the G20 countries would send “the right signal of confidence”.
Irish businessman Peter Sutherland, a former head of the trade body who was in Davos, criticised former US president Bill Clinton for casting doubts on any possible trade deal because of the crisis. “It wasn’t helpful to hear Bill Clinton saying trade agreements should be put to one side for the moment.”
http://www.irishtimes.com/newspaper/finance/2009/0202/1232923381365.html?digest=1
"President Barack Obama and his economic team are being careful to couch all their talk about economic stimulus programs and bank bailout programs in warnings that the economic downturn is serious and that it will take considerable time to bounce back.
I’m reminded of an experience I had with Chinese medicine when I was living in Shanghai back in 1992. I had come down with a nasty case of the flu while teaching journalism at Fudan University on a Fulbright Scholar program. A Chinese colleague suggested I go to the university clinic. When I told him there wasn’t much point since doctors couldn’t do much for the flu besides recommend fluids and bed rest, he said, “That’s Western doctors. You could go to the Chinese medicine doctors at the clinic. They can help you.” I figured, what the hell, and we went. The doctor inquired into the lurid details of my illness—how my bowel movements looked, the color of the mucus in my nose, etc. He didn’t really examine me physically. Then he prescribed an incredible number of pills and teas and sent me home with a huge bag of stuff, and instructions on the regimen for taking them through the course of each day. I followed the directions dutifully, and my colleague came by each day to check on my progress. By the fifth day, when I was still running a fever and feeling terrible, I told him I didn’t think the Chinese medicine was working. He replied confidently, “Chinese medicine takes a long time to work.”
I laughed at this. “Sure,” I said. “But the flu only lasts a week or so, and now, when I get better, you’ll say it was the Chinese medicine, right?”
He smiled and agreed. “Yes. You are right.”
Obviously the Obama administration recognizes that it needs to keep the finger of blame for the current economic collapse squarely pointed at the Bush administration, which is certainly fair in large part (though the Clinton deregulation of the banking industry played a major part in the financial crisis and its enthusiastic promotion of globalization began the massive shift of jobs overseas that has left the nation’s productive capacity hollowed out). But it also seems to recognize that it cannot tell the bitter truth, which is that our national economy will never “bounce back” to where it was in 2007.
America, and individual Americans, have been living profligately for years in an unreal economy, propped up by easy credit which inflated the value of real estate to incredible levels, and which led people to spend way beyond their means. Ordinary middle-class working people have been encouraged to buy obscenely oversized homes at 5% down, or even no down payment. They have been lured into buying cars the size of trucks, one for each driving-aged member of the family (in our town, so many high school kids drive to school that the school ran out of parking spaces and the yellow school buses, largely empty on their runs, are referred to by the students as the “shame train,” an embarrassment to be seen riding). They’ve installed individual back-yard swimming pools, unwilling to share the water with their neighbors in community pools. Boring faux ethnic restaurant franchises of all kinds have befouled the landscape, filling up with families too stressed out to cook, and willing to endure over-salted, over-priced and tasteless cuisine and tacky plastic décor night after night.
Now this is all crashing down. Property values are in free-fall. Car sales have fallen off a cliff. Joblessness is soaring (At present, it’s approaching an official rate of 8%, but if the methodology used in 1980, before the Reagan administration changed it to hide the depth of that era’s deep recession, were applied, it would be 17% today, or one in seven workers).
Eventually, the economic slide will hit bottom and begin its slow climb back, as all recessions do, but there will be no return to the days of $500,000 McMansion developments, three-car garages and a new car every two or three years for both parents plus a car for each highschooler. Not only will banks no longer be able to offer such credit to clients. People, having been burned, will not be willing to borrow so much. Company health care benefits, pension programs or 401(k) matching programs that were slashed during this downturn will not be restored when the economy picks up again.
Over the last 20 years, America has degenerated into a nation of consumers, with 72 percent of Gross Domestic Product (sic) now being accounted for by consumer spending—most of it going for things that are produced overseas and shipped here.
That is not an economic model that is sustainable, and it is a model that has just suffered what is certainly a mortal blow.
What we are now seeing is the beginning of an inevitable downward adjustment in American living standards to conform with our actual place in the world. As a nation of consumers, and not producers, with little to offer to the rest of the world except raw materials, food crops, military hardware and bad films (none of which industries employ many people), we are headed to a recovery that will not feel like a recovery at all. Eventually, productive capacity will be restored, as lowered US wages make it again profitable for some things to be made here at home again, but like people in the 1930s looking back at the Roaring 20s of yore, we are going to look back at the last two decades as some kind of dream."
http://www.counterpunch.org/lindorff01302009.html
"For 15 years, Ireland's economy boomed, but today it is the country most severely hit by recession in the Eurozone. Every five minutes, a job is lost. When the property bubble burst, Irish banks had to pay the price. In Limerick, computer giant Dell is shedding 1900 jobs, closing its plant and moving to Poland.
Ireland's deputy prime minister presents students with business awards, but with unemployment at 8%, students are worried about their future.The government is about to take some unpopular decisions - Irish tax payers will soon be handed a large bill. The French took to the streets for far less; how the Irish respond remains to be seen."
http://www.independent.co.uk/news/world/europe/irish-economy-worst-hit-in-eurozone-1547150.html
"Great Britain
Economic damage: The financial crisis has gotten so severe in Britain that it has earned London a new nickname in the international media: Reykjavik-on-Thames. The question in Britain is no longer when the economy will enter a recession, but when it will enter a depression, with many bracing for a slump that could rival the 1930s in severity. GDP fell 1.5 percent in the fourth quarter of 2008, and the European Union estimates it will contract another 2.8 percent in 2009. Unemployment is projected to balloon to more than 8 percent by year's end, and an estimated 23 percent of adult Britons currently consider their debt level "unmanageable."
The British downturn is especially severe because the U.K. is more dependent on its financial sector than most developed economies. All told, British banks currently hold about $4.4 trillion in foreign debt (which, until recently, included a large amount of Iceland's debt). For a $2.1 trillion economy, that's a heavy load to bear.
Political fallout: Prime Minister Gordon Brown initially earned voters' confidence by seizing a leading international role in the response to the crisis but, as the recession deepened, British sentiment has turned against the government. A recent poll showed that almost 6 in 10 Britons think the latest economic recovery measures will fail and gave the opposition Tories a 15-point edge over Brown's Labour Party.
The government has already nationalized much of its financial sector, and investors fear that another round of nationalization might be around the corner. Government intervention has become so pervasive that nearly half of the economy will consist of state spending in the coming year. This, in turn, has earned Britain another nickname: Soviet Britain.
Latvia
Economic damage: Latvia is arguably the one country that most resembles Iceland, and not just because of the cold climate. The small, developing country's lofty growth rates in recent years were fueled by heavy investment from elsewhere in Europe, massive foreign debt, booming consumption, and minimal savings. After growing at an extraordinary 12.2 percent rate in 2006, Latvia's economy is now the weakest of the 27 EU member states. A European Commission report forecast that Latvia's GDP is set to contract 6.9 percent in 2009 and a further 2.4 percent in 2010, with unemployment climbing into the double digits by next year. The International Monetary Fund has approved a $7.3 billion bailout package for Latvia, but a long road to recovery remains.
With financial markets tightening and housing markets crashing down to earth, Latvian businesses have ground to a halt and the government has been forced to cut services to the bone. A new program will involve a 25 percent cut in the state budget, 15 percent wage reductions, and widespread layoffs.
Political fallout: The financial crisis threatens not only Latvians' livelihoods, but it also poses a danger to their nascent democratic system. The government's popularity currently sits at about 10 percent. In the largest protests since the rallies against Soviet rule in the 1980s, more than 10,000 Latvians gathered earlier this month in the capital of Riga to protest the government's mismanagement of the economy. Some demonstrations turned violent, as angry youths threw rocks and eggs at police and lobbed cobblestones at the Parliament building.
The government has initiated a crackdown of its own, unleashing its security forces against those guilty of economic pessimism. When a university lecturer speculated that the crisis might cause a devaluation in Latvia's currency, he was arrested and held in jail for two days.
Greece
Economic damage: The Greek economy, burdened by a debt-to-GDP ratio of more than 90 percent, is one of the shakiest in the European Union. The adoption of the euro had previously fueled Greece's economic boom, but it is now one of the primary obstacles to getting the country out from underneath its massive debt. The typical method countries use to alleviate their debt is to depreciate their currency, lessening the real value of their liabilities. But with a single currency in use across the euro zone, Greece no longer controls its own monetary policy. Faced with the strain of falling tax revenues and the need to fund a bailout program, Greece could be forced to withdraw from the euro zone or default on its debt.
Standard & Poor's cut the country's sovereign debt rating earlier this month due to concerns over its rising deficit. Now, Greece must pay 5.6 percent to finance its 10-year debt, 2.5 percentage points more than Germany. As the financial crisis continues, expect the rift between the haves and the have-nots in the EU to widen further.
Political fallout: Outrage over a police shooting spilled over into widespread rioting throughout Greece in December. More than 150 banks were targeted by youths during the first days of the riots. Greece's bleak economic situation is widely considered to be the underlying cause of the unrest. Greek banks had invested heavily in development in the Balkans and, with the onset of the financial crisis, found themselves dangerously overextended. The center-right government was forced to bail them out, but at the cost of drawing funds from social welfare programs. The image of the Greek government handing bags full of money to wealthy financiers while services were cut for the general populace has decimated the government's credibility.
Ukraine
Economic damage: Ukraine's export-oriented economy and its volatile political system have combined to make the country one of the hardest-hit eastern European markets in the financial crisis. Steel exports are at the heart of Ukraine's economy, and plummeting international demand has brought the country's mills to a near standstill. The production of metals needed to manufacture steel dropped 43 percent in December 2008 compared with that month in 2007, when Ukraine ranked as the world's eighth-largest steel producer. Ukraine was only saved from complete economic collapse by a $16.5 billion loan from the IMF in October, the largest package given to a country in Eastern Europe. But recently, the Parliament approved a 2009 budget with a planned deficit of 3 percent, in violation of the terms of the IMF loan, which requires a balanced budget. This could delay the next, desperately needed installation of IMF funds, due in February.
Political fallout: Ukraine's politicians, meanwhile, are bickering while their country goes bust. In early October, Ukrainian President Viktor Yushchenko dissolved Parliament and called for early elections in a bid to weaken his rival, Prime Minister Yulia Tymoshenko. Tymoshenko responded that it would be irresponsible to burden Ukraine with the costs of an election during the crisis, and blocked funding for the elections. A poll conducted in December found that only 26 percent of Ukrainians thought the government could tackle the country's economic crisis. If the politicians' bickering continues to harm Ukraine's economic standing, both ruling parties could pay for it at the next election – whenever that may be.
Nicaragua
Economic damage: Nicaraguan President Daniel Ortega, an old U.S. enemy from the Cold War, explained the financial crisis by stating, "God is punishing the United States." But the ripple effects from the crisis will likely reach all the way to his own country. Nicaragua's economy is heavily dependent on remittances, with the central bank estimating that Nicaraguans abroad send back between $800 million and $1 billion every year. The U.S. economic downturn means that fewer Nicaraguans will have money to send home. The financial crisis has also pushed down the price of coffee, Nicaragua's main export, as investors have abandoned the commodity market.
Political fallout: To make matters worse, Ortega's increasingly authoritarian tendencies have earned him the enmity of developed countries, which Nicaragua depends on for aid. In the run-up to municipal elections in November, Ortega's government disqualified two opposition parties, sent police to intimidate his regime's leading critics, and banned independent local and foreign observers from monitoring the election. In response, the United States and six European countries suspended an estimated $150 million in development aid to the Western Hemisphere's second-poorest country.
Ortega might come to regret his schadenfreude at the U.S. economic downturn when it's his country that is feeling the effects."
http://www.foreignpolicy.com/story/cms.php?story_id=4648&page=0
"Watching the crowds in Iceland banging pots and pans until their government fell reminded me of a chant popular in anti-capitalist circles in 2002: “You are Enron. We are Argentina.”
Its message was simple enough. You--politicians and CEOs huddled at some trade summit--are like the reckless scamming execs at Enron (of course, we didn't know the half of it). We--the rabble outside--are like the people of Argentina, who, in the midst of an economic crisis eerily similar to our own, took to the street banging pots and pans. They shouted, "¡Que se vayan todos!" ("All of them must go!") and forced out a procession of four presidents in less than three weeks. What made Argentina's 2001-02 uprising unique was that it wasn't directed at a particular political party or even at corruption in the abstract. The target was the dominant economic model--this was the first national revolt against contemporary deregulated capitalism.
It's taken a while, but from Iceland to Latvia, South Korea to Greece, the rest of the world is finally having its ¡Que se vayan todos! moment.
The stoic Icelandic matriarchs beating their pots flat even as their kids ransack the fridge for projectiles (eggs, sure, but yogurt?) echo the tactics made famous in Buenos Aires. So does the collective rage at elites who trashed a once thriving country and thought they could get away with it. As Gudrun Jonsdottir, a 36-year-old Icelandic office worker, put it: "I've just had enough of this whole thing. I don't trust the government, I don't trust the banks, I don't trust the political parties and I don't trust the IMF. We had a good country, and they ruined it."
Another echo: in Reykjavik, the protesters clearly won't be bought off by a mere change of face at the top (even if the new PM is a lesbian). They want aid for people, not just banks; criminal investigations into the debacle; and deep electoral reform.
Similar demands can be heard these days in Latvia, whose economy has contracted more sharply than any country in the EU, and where the government is teetering on the brink. For weeks the capital has been rocked by protests, including a full-blown, cobblestone-hurling riot on January 13. As in Iceland, Latvians are appalled by their leaders' refusal to take any responsibility for the mess. Asked by Bloomberg TV what caused the crisis, Latvia's finance minister shrugged: "Nothing special."
But Latvia's troubles are indeed special: the very policies that allowed the "Baltic Tiger" to grow at a rate of 12 percent in 2006 are also causing it to contract violently by a projected 10 percent this year: money, freed of all barriers, flows out as quickly as it flows in, with plenty being diverted to political pockets. (It is no coincidence that many of today's basket cases are yesterday's "miracles": Ireland, Estonia, Iceland, Latvia.)
Something else Argentina-esque is in the air. In 2001 Argentina's leaders responded to the crisis with a brutal International Monetary Fund-prescribed austerity package: $9 billion in spending cuts, much of it hitting health and education. This proved to be a fatal mistake. Unions staged a general strike, teachers moved their classes to the streets and the protests never stopped.
This same bottom-up refusal to bear the brunt of the crisis unites many of today's protests. In Latvia, much of the popular rage has focused on government austerity measures--mass layoffs, reduced social services and slashed public sector salaries--all to qualify for an IMF emergency loan (no, nothing has changed). In Greece, December's riots followed a police shooting of a 15-year-old. But what's kept them going, with farmers taking the lead from students, is widespread rage at the government's crisis response: banks got a $36 billion bailout while workers got their pensions cut and farmers received next to nothing. Despite the inconvenience caused by tractors blocking roads, 78 percent of Greeks say the farmers' demands are reasonable. Similarly, in France the recent general strike--triggered in part by President Sarkozy's plans to reduce the number of teachers dramatically--inspired the support of 70 percent of the population.
Perhaps the sturdiest thread connecting this global backlash is a rejection of the logic of "extraordinary politics"--the phrase coined by Polish politician Leszek Balcerowicz to describe how, in a crisis, politicians can ignore legislative rules and rush through unpopular "reforms." That trick is getting tired, as South Korea's government recently discovered. In December, the ruling party tried to use the crisis to ram through a highly controversial free trade agreement with the United States. Taking closed-door politics to new extremes, legislators locked themselves in the chamber so they could vote in private, barricading the door with desks, chairs and couches.
Opposition politicians were having none of it: with sledgehammers and an electric saw, they broke in and staged a twelve-day sit-in of Parliament. The vote was delayed, allowing for more debate--a victory for a new kind of "extraordinary politics."
http://informationclearinghouse.info/article21959.htm
"Eastern Europe is about to blow. If it does, it could take much of the EU with it. It's an emergency situation but there are no easy solutions. The IMF doesn't have the resources for a bailout of this size and the recession is spreading faster than relief efforts can be organized. Finance ministers and central bankers are running in circles trying to put out one fire after another. Its only a matter of time before they are overtaken by events. If one country is allowed to default, the dominoes could begin to tumble through the whole region. This could trigger dramatic changes in the political landscape. The rise of fascism is no longer out of the question.
The UK Telegraph's economics editor Edmund Conway sums it up like this:
"A 'second wave' of countries will fall victim to the economic crisis and face being bailed out by the International Monetary Fund, its chief warned at the G7 summit in Rome....But with some countries' economies effectively dwarfed by the size of their banking sector and its financial liabilities, there are fears they could fall victim to balance of payments and currency crises, much as Iceland did before receiving emergency assistance from the IMF last year." (UK Telegraph)
Foreign capital is fleeing at an alarming rate; nearly two-thirds gone in matter of months. Deflation is pushing down asset prices, increasing unemployment, and compounding the debt-burden of financial institutions. It's the same everywhere. The economies are being hollowed out and stripped of capital. Ukraine is teetering on the brink of bankruptcy. Poland, Latvia, Lithuania, Hungary have all slipped into a low-grade depression. The countries that followed Washington's economic regimen have suffered the most. They bet that debt-fueled growth and exports would lead to prosperity. That dream has been shattered. They haven't developed their consumer markets, so demand is weak. Capital is scarce and businesses are being forced to deleverage to avoid default. All of Eastern Europe has gotten a margin call. They need extra funds to cover the falling value of their equity. They need a lifeline from the IMF or their economies will continue to crumble."
More at: http://informationclearinghouse.info/article22007.htm
"DUBLIN (AFP) – Up to 120,000 protesters brought Dublin city centre to a standstill on Saturday over government austerity measures aimed at stabilising the once high-flying economy now wracked by recession.
The demonstration came a day after the global economic crisis led to another political casualty elsewhere in Europe, with Latvia's prime minister quitting as his country grapples with deepening recession.
Organised by the Irish Congress of Trade Unions (ICTU) and featuring teachers, police, civil servants and others, the Irish protest was the "first step in a rolling campaign of action," ICTU general secretary David Begg said.
Police put the number of protesters at up to 120,000.
Marchers are particularly opposed to a pension levy on some 350,000 public servants which is designed to save about 1.4 billion euros (1.8 billion dollars) this year.
According to IMPACT, Ireland's biggest public sector trade union, the levy will cost low to middle-income earners between 1,500 euros and 2,800 euros a year.
Irish Prime Minister Brian Cowen is bringing in an initial two-billion-euro package of cuts designed to stabilise the one-time Celtic Tiger economy, which entered recession in the first half of 2008.
Cowen has said the economy will shrink by up to 10 percent by 2010 and warned of total savings of 15 billion euros needed over five years in a bid to stabilise Irish finances.
In a statement to coincide with the demonstration, the government said it recognised that the measures it was taking "are difficult and, in some cases, painful" but they were also "necessary and fair."
"They are necessary because it is essential that we show a credible start on the correction of an emerging unsustainability in our public finances," it said.
"Failure to show that credible start means that we impact directly and severely on our international reputation among investors and, in particular, on our capacity to raise funds, and on the direct cost of servicing the borrowing which we are able to undertake."
The ICTU describes the government's measures as "lacking in fairness and focussing only on 'stabilising' the public finances at the expense of economic renewal and job protection."
The global economic crisis, which has hit several European countries hard, has led to political instability in several parts of the continent.
Iceland's government became the first political casualty of the downturn when it was forced to step down on January 26 following months of protests against politicians and central bankers.
A new interim government comprising the Social Democrats and the Left Green party has been in power since February 1, and new elections are expected to be held in April.
More recently, Latvia's Prime Minister Ivars Godmanis quit his position on Friday, amid widespread discontent over belt-tightening and politicians' alleged corruption and nepotism.
Latvia showed the fastest economic growth in the European Union in 2006 but its economy is expected to contract 12 percent this year, with unemployment soaring to 12.7 percent from the current 8.3 percent.
Fellow Baltic states Lithuania and Estonia face similar troubles."
http://news.yahoo.com/s/afp/20090221/wl_afp/financeeconomyirelandpoliticsprotest_20090221191418
"Islands, it's well known, are more vulnerable to species extinctions than continents. Could the same be true with economic extinctions? After all, as Rebecca Solnit wrote at this site, the small North Atlantic island of Iceland (pop. 320,000) went bust first in this ongoing, roiling economic crisis. Its economy had been riding high on speculative funny money for years when, in little more than a week in October, all three of its major banks cratered and the country's currency essentially ceased to have value. Not long after, Icelanders hit the streets of their capital, Reykjavik, launching protests, which have yet to end. Soon after, the government fell.
Just this Saturday, Ireland, another suddenly shaky island, whose economy had been riding high on funny money, saw mass protest in the streets of its capital. As the British Times described the scene: "For two hours yesterday Dublin's O'Connell Street was a swollen river of anger as 100,000 people marched in protest at the government's handling of the financial crisis." At least one protestor carried a sign warning of "a lesson learnt from Iceland." And in this climate of unrest that threatens to flood islands with "swollen rivers of anger," the British police are now bracing for the worst -- a possible "'summer of rage' with mass protests over the economic crisis that could mar Prime Minister Gordon Brown's G20 summit in London in April." We're talking here about a formerly prosperous isle that is now inspiring headlines like "Is The U.K. Another Iceland?" and whose capital has been dubbed by some "Reykjavik on the Thames."
But mainlands, as Michael Klare, author of Rising Powers, Shrinking Planet: The New Geopolitics of Energy, tells us in his latest TomDispatch post, haven't exactly been immune from rage either. As the planet seems to melt down, day by day, week by week, no place may be. Everywhere, it seems, authorities are bracing themselves for the worst. Just yesterday, for instance, the New York Times reported that, in China, which has lost 20 million jobs in the last few months, "more than 3,000 public security directors from across the country are gathering in the capital to learn how to neutralize rallies and strikes before they blossom into so-called mass incidents."
Good luck, as they say. Let Klare -- who, back in the 1990s, may have been the first person to seriously consider the kinds of violence, conflict, and even "resource wars" that might arise out of scarcity and tough times -- survey the global landscape and offer you a sense of what may lie ahead."
More at: http://www.tomdispatch.com/post/175038/michael_klare_a_pandemic_of_economic_violence
UPDATE:
"A dire warning that the Republic is a prime candidate to go bust has come from one of the world's leading economic historians.
"The idea that countries don't go bust is a joke," said Niall Ferguson, Harvard professor and author of The Ascent of Money.
"The debt trap may be about to spring" he said, "for countries that have created large stimulus packages in order to stimulate their economies."
His chosen prime candidate to go bust is "Ireland, followed by Italy and Belgium, and UK is not too far behind".
Argentina is top of his list of shaky countries but "the argument that it can't happen in major western economies is nonsense".
Professor Ferguson believes the economists are ill qualified to analyse the current economic situation since they lack the overview of historians such as himself.
"There are economic professors in American universities who think they are masters of the universe, but they don't have any historical knowledge. I have never believed that markets are self correcting. No historian could."
The historian does not subscribe to the theory of the "Great Depression" repeating and says this scenario is unlikely because the Federal Reserve has "massively expanded the monetary base which is the opposite of what happened in the 1930s".
The problem now is what happens when current monetary policy collides with a policy of "vast government borrowing" on a scale unknown since the 1940s.
"We have the fiscal policy of a world war without a war."
Referring to the clash between inflation and deflation he added: "I don't know who is going to win but we know that while the struggle goes on ordinary people will get trampled. There will be more economic volatility and ordinary people will pay."
He has also warned that in Britain he expects "more riots in major cities this year" because of the economic situation and says the recent "drip feed" of the peccadilloes of British MPs and their expenses is "just the beginning of a crisis of political legitimacy that will be played out over the next 18 months".
Ferguson, a native of Glasgow, specialises in financial and economic history as well as the history of the British empire."
This article is from The Belfast Telegraph.
http://www.independent.co.uk/news/world/europe/ireland-set-to-go-bust-claims-economic-historian-1692673.html
. . .
"Iceland: What Ugly Secrets Are Waiting To Be Exposed In The Meltdown?
Almost a year since the collapse of the Icelandic banks, the rotten nature of these financial corpses is slowly beginning to emerge.
For months rumours of share-ramping, market manipulation, excessive loans to their owners and unusual transfers off-shore have been circling Kaupthing, Glitnir and Landsbanki, whose failure last October left 300,000 British customers unable to access their money.
It has now become clear that this was no ordinary crash. Iceland's special investigation into "suspicions of criminal activity" at the three banks is likely to stretch from Reykjavik to London, Luxembourg and the British Virgin Islands.
Eva Joly, the French-Norwegian MEP and fraud expert hired by Iceland and now working with the Serious Fraud Office, now believes it will be "the largest investigation in history of an economic and banking bank collapse".
Many of the banks' secrets are likely to be inextricably bound up with corporate Britain and the success of these investigations in tracing and recovering assets is likely to affect every UK household.
Local authorities lost £1bn – or 5pc of all the money from council tax – in the over-leveraged institutions, leaving many facing the prospect of drastic cuts in services or steep hikes next year as they wait for the proceeds of the banks' administration to dribble through.
Although the Treasury can barely afford the UK's own bailout, it was forced to pay out £7.5bn to British savers who had internet accounts with Landsbanki's Icesave and Kaupthing's Edge with the uncertain prospect of getting the money back.
It now looks like Icelandic MPs will agree to pay £2.3bn to the Treasury to reimburse British savers up to the value of 20,887 euros (£18,054).
Not only did local authorities, charities and savers have billions tied up in its bank accounts, but a number of the City's wealthiest investors, from Robert Tchenguiz and the Candy Brothers to Kevin Stanford and Simon Halabi received hefty corporate loans from these insititutions.
But among the worst affected by the crisis are 10,000 savers with £840m tied up in Kaupthing in the Isle of Man and 2,000 savers with £117m in Landsbanki in Guernsey. All lost their entire savings with no compensation. Many are still waiting in line with a queue of commercial creditors.
When the banks were put into administration last October, experts believed that Iceland's banks had simply fallen prey to the global credit crisis.
But Dr Jon Danielsson, an Icelander who teaches economics at the London School of Economics, believes that while the timing of the crash was dictated by the global banking crisis, the scandal is unique among European financial institutions.
He believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatise the banks in the early 1990s.
"Iceland got its regulations from the EU, which was basically sound," he says. "But the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree."
Kaupthing fell into the clutches of the Gudmundsson brothers, Ágúst and Lydur, who made their fortunes building up the Bakkavor food manufacturing empire, which supplies hundreds of supermarkets in the UK. Their investment vehicle, Exista, owned 23pc of the bank, counting Robert Tchenguiz, the London property entrepreneur as a board member.
Kaupthing's loan book, which was leaked on to the internet last week, shows that around one third, or €6bn (£5.1bn), of its €16bn corporate loan book was going to a small elite of men connected to the bank's owners and management.
Several investigations into Kaupthing centre on share ramping, where the bank would allegedly give loans with no interest or security in order to buy shares in that same bank – boosting the share price.
One particularly murky incident revolves around the acquisition of a 5pc stake in Kaupthing by a company called QFinance linked to Mohammed bin Khalifa Al-Thani, the Sheikh of Qatar. Several weeks before the banks collapsed, a press release stated that the transaction showed that "Kaupthing's position is strong and we believe in the bank's strategy and management."
Only after the bank collapsed several weeks later did it emerge that the Qatari investor "bought" the stake using a loan from Kaupthing itself and a holding company associated with one of its employees. The bank appears, in effect, to have been purchasing its own shares, which does not seem to be uncommon; investigators are also looking at a similar purchase of a 2.5pc stake in Kaupthing by London-based property entrepreneurs Moises and Mendi Gertner.
Officials have also questioned why loans to senior Kaupthing employees to buy shares in the bank were allegedly written off days before the collapse."
More at:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6034654/Iceland-what-ugly-secrets-are-waiting-to-be-exposed-in-the-meltdown.html
The Little Economy That Couldn’t
THERE is a relatively new expression in global financial circles: “going Iceland.”
It’s not an invitation to foreign tourists to enjoy a vacation on the island known for its geysers, glaciers and legendary Viking heritage. Rather, as Asgeir Jonsson explains, it denotes the sudden economic collapse of an entire country, a tale that larger nations might do well to heed.
Mr. Jonsson details Iceland’s extraordinary roller-coaster ride from rags to riches and back to rags in his fascinating, if often frustratingly arcane, book, “Why Iceland? How One of the World’s Smallest Countries Became the Meltdown’s Biggest Casualty” (McGraw-Hill, $22.95).
Mr. Jonsson says Iceland’s plunge was not caused by criminality or bad luck, and he makes his case with a store of insider knowledge. A native Icelander and the author of several books about Icelandic history and economics, he is head of research and chief economist at Kaupthing Bank, which as the largest bank in Iceland was a central figure in the crisis.
Mr. Jonsson devotes the first half of the book to a recounting of the nation’s history and its rapid-fire evolution into a modern banking power. The main theme is a recurrent swing between an extreme geographic, cultural and geopolitical isolation and an apparently contradictory, equally extreme openness.
“Iceland was the creation of cosmopolitans, Norse chieftains who roamed through the Atlantic and even into the Mediterranean,” Mr. Jonsson notes. “These were confident, risk-taking adventurists that conducted daring raids on hostile territories. On the other hand, they were also refugees, and deeply suspicious of any foreign authority.”
For more than 1,000 years, Iceland remained, as Mr. Jonsson puts it, “frozen in time,” having a land mass the size of Kentucky, an economy based on farming and fishing, and a language all its own.
But the author says Icelanders “refuse to acknowledge that the small size of their nation could ever be a hindrance to their ambition.” He describes them as full of “unbounded confidence and zealous drive” but hobbled by “a lack of critical thinking and precaution.”
All of these traits came starkly into play during the 1990s, when a generation of Icelanders born between 1966 and 1976 set their sights on transforming their country into a global financial center. Mr. Jonsson’s own Kaupthing Bank was among a handful of major players in this game; it was a commercial bank, an investment bank, a private equity firm and a hedge fund.
In order to grow, Kaupthing bankers had to find opportunities overseas. Iceland’s central bank didn’t have the regulatory authority of the Federal Reserve of the United States. And lacking a “lender of last resort,” Mr. Jonsson says, Icelandic banks had to rely on international wholesale credit markets for financing.
Before everything fell apart, Kaupthing and rival institutions like Landsbanki and Glitnir built a financial empire worth — at least on paper — 10 times their country’s gross domestic product. The wealth of the average Icelandic family also increased.
In October 2008, just days after the fall of Lehman Brothers, the Icelandic house of cards toppled. The collapse was caused by a sudden loss of confidence by foreign financial institutions and hedge funds. Investors stampeded to sell their stakes and/or short the Icelandic krona.
Mr. Jonsson says the Federal Reserve, the European Central Bank and the Bank of England refused to rescue the Icelandic banks with emergency loans. Kaupthing, Glitnir and Landsbanki went into receivership, many nonbank Icelandic companies were effectively bankrupted and thousands of average citizens lost their life savings.
The humiliated Icelandic government ultimately accepted a $6 billion bailout package from the International Monetary Fund.
According to Mr. Jonsson, about 95 percent of the Icelandic banking system, including his employer, Kaupthing, is now under state control.
He says the nation, which has a population of about 300,000, is torn between trying to recapture “ephemeral international glory” by joining the European Union and returning “to the old Iceland, contained in a natural, resource-based economy.”
Mr. Jonsson warns that in the meantime, Britain and Switzerland may be setting themselves up for financial crisis. He says that both have relatively small populations, “large internationally exposed banking sectors,” “a currency that is not a global reserve currency” and “limited fiscal capacities.”
“WHY ICELAND?” is a provocative, urgently important case study in international finance, but it is marred by the fact that the prose sometimes degenerates into macroeconomic-speak that may be incomprehensible to the general reader.
“The quotas were maintained for assets with risk that ran idiosyncratic to the international financial market,” the book says at one point, “and thus incrementally decreased the total risk of their portfolio adjusted for return.”
Mr. Jonsson also stops short of applying the lessons of Icelandic banking to the United States — which, of course, has a large population, the Fed and a global reserve currency. But our government has lately become a major stakeholder in some of our biggest banks and corporations. If the rest of the world suddenly loses confidence in our faith and credit, will America still be fiscally strong enough to avoid “going Iceland?”
http://www.nytimes.com/2009/08/16/business/16shelf.html?em
"Serious Fraud Office To Investigate Iceland’s Banking Collapse
The Serious Fraud Office is to meet Icelandic investigators next month in a bid to discover if any criminal wrongdoings led to the collapse of Iceland’s banking sector.
According to the Financial Times, SFO director Richard Alderman is to hold talks with anti-corruption expert Eva Joly to assist in the investigation following recent questioning of the lending practices at the Icelandic banks.
Britain was one of the biggest losers following the collapse of the Icelandic banks in October last year. The SFO meeting comes on the back of a leaked report which highlighted unusual lending patterns at Kaupthing Bank, which was one of three to collapse.
Iceland’s coalition government is looking to win approval for a deal to reimburse the British and Dutch governments for £3.4bn, which was paid out in compensation to citizens who held deposits in Icelandic accounts."
By Chris Salih
http://www.moneymarketing.co.uk/cgi-bin/item.cgi?id=191784&d=340&h=341&f=342
"Economist answers question "Why Iceland?"
Brashness, self-assurance and an entrepreneurial spirit -- those traits transformed Iceland from a tiny fishing nation into an outsized investment fund that blew up and briefly became the epicentre of the global financial crisis. Skip related content
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Asgeir Jonsson, chief economist of top bank Icelandic bank Kaupthing, details what happened in "Why Iceland?" (McGraw-Hill, $22.95/£13.81), a very readable account that explains the financial engineering that led to Iceland's boom and bust.
Iceland, an island the size of Kentucky with 300,000 people, laid the groundwork for its financial miracle in the 1990s, when the government enacted reforms like tax cuts, a flexible labour market and privatizations.
Cheap money abroad helped do the rest, as did top-notch credit ratings, hedge funds' appetite for Iceland's high-yielding krona currency, an ever-rising stock market and flamboyant entrepreneurs like Jon Asgeir Johannesson, who installed a 10-foot Viking statue with a sword and electric guitar at his London office.
Banks and entrepreneurs went on shopping sprees and created an ever-wider net of companies that bought stakes in each other at ever-higher prices. In the end, the nation itself had become a highly leveraged fund that borrowed foreign money to buy stuff at inflated prices.
GEYSER CRISIS
A warning signal came with the "Geyser crisis," named after the Iceland hot spring known for its violent eruptions.
Hedge funds had long borrowed cheap Japanese yen to invest in high-yielding currencies like the krona. They reversed this so-called carry trade in early 2006 when it became clear the krona had become overvalued.
A joint intervention by the central bank and private banks beat back the attack on the krona, and Iceland again went on its merry way. With regulators and politicians asleep at the wheel, the confidence of Iceland's entrepreneurs turned to arrogance.
Where was Jonsson in all this? Did he see and warn of the coming crisis? The book doesn't say.
"In hindsight, one can easily see I was too naive," Jonsson told Reuters, adding that he did not appreciate how cross-shareholdings had created a house of cards. "Our main problem was over-ambition, wanting to be too big for a nation so small."
ANTI-CLIMAX FOR THE AGES
The house came crashing down in 2008, after the fateful weekend of Lehman Brothers' bankruptcy. Banks shut off the island's credit lines; the UK confiscated Icelandic Internet savings accounts using anti-terrorist laws; and the government let its three main banks go bust and appealed -- in vain -- for Russian financial aid.
A former assistant professor of finance, Jonsson describes the sequence of events well, but provides almost none of the behind-the-scenes drama.
He does have plenty to offer: He was head-hunted from academia by Kaupthing's CEO, a university buddy, to become "the only guy in the bank with a beard," he said in the interview. His own father, now minister of fisheries and agriculture, agitated against "corporate greed" during the boom years.
Jonsson says he left out his personal experiences to follow Iceland's tradition of writing history in a fair and detached way.
So when the crisis peaked in early October and Iceland's leadership was holed up in a historical government villa for days, Jonsson doesn't take us to the negotiating table.
He does summarize the government's paralysis brilliantly when he recounts former Prime Minister Geir Haarde's press statement after days of deliberations: "'I haven't really had a decent breakfast yet,' he claimed, delivering an anti-climax for the ages."
The only personal anecdote involves partying with a group of increasingly boisterous U.S. hedge fund managers in Reykjavik's trendy 101 Hotel in early 2008. One of them -- "Joe," who looks like a New York City cop -- sounds a prescient warning: Iceland will "be the place for the second coming of Christ, a new financial Armageddon."
Reuters Jack Reerink
http://uk.news.yahoo.com/22/20090813/tbs-uk-books-iceland-sb-03c9bed.html
"Report Questions Lending of Iceland Bank
Still licking its wounds after the collapse of its economy, Iceland finds itself confronting the ghosts of a grim financial past after a confidential report implicating the nation's largest bank of irresponsible lending was leaked on the Internet.
The 210-page internal report intended for the board of Kaupthing Bank appeared on the whistleblower site Wikileaks.org on July 30. It details huge loans that Kaupthing granted to parties linked to the bank, including its largest shareholders and clients. Dated Sept. 25, 2008, the document pulls back the curtain on unscrupulous lending practices the bank engaged in just before Iceland's economy went into meltdown.
Just two years ago, the tiny nation of Iceland (pop. 320,000) seemed a veritable utopia, topping the U.N.'s Human Development Index with nearly non-existent unemployment, huge purchasing power and the fourth-highest GDP per capita in Europe. Much of that wealth came from the country's banks, which were plump with borrowed foreign capital brought in through retail savings schemes the banks had opened in European countries such as the U.K., Germany and the Netherlands. At their peak, the assets of Iceland's major banks were 10 times as large as the nation's GDP.
Then last fall's credit crunch hit, and Iceland's banks drowned in a flood of insolvency and debt, bringing the nation's economy down with them. The national currency, the krona, lost 60% of its value against the dollar, businesses failed one after the next, and bank customers in the U.K., Germany and the Netherlands suddenly found their accounts empty. Rioting broke out in the streets, the government collapsed and, finally, in an attempt to stop the bleeding, the nation's three big banks were nationalized in October 2008. But the crippled nation is still angry as it asks: where did all the money go?
Now the leaked report offers some answers, giving a startling snapshot of how the largest of the country's banks, Kaupthing, was doling out billions only weeks before the economy collapsed.
According to the report, Kaupthing's exposure to its 10 largest clients totaled over $12 billion, nearly three times the size of Iceland's national budget. The largest amounts went to Exista, an investment company and Kaupthing's largest shareholder with a 23% stake. Some of the other big recipients were companies connected to Lyður Guðmundsson, who sat on the board of Kaupthing and Exista; Robert Tchenguiz, the London property tycoon and Kaupthing's largest client; and U.K. retail giant Kevin Standford.
While the report does not implicate the bank in illegal activity, the propriety of some of the lending is shady at best, with high-risk loans going in many cases to large shareholders in the bank and related parties. Some of the loans didn't even have collateral. Furthermore, many of the loans were granted to purchase shares directly in the bank or shareholder companies like Exista.
In an interview with Stöd 2 News on Aug. 2, Vilhjálmur Bjarnason, director of Iceland's Investors' Association, said that the loans Kaupthing granted to buy its own shares and shares in Exista smack of market manipulation in an attempt to prop up the companies' plummeting share prices. His concerns were echoed last week by Gunnar Andersen, director general of Iceland's top financial regulator, the Financial Supervisory Authority, who told the Financial Times that his agency would hand over several more examples of "serious" manipulation to the special prosecutor investigating last year's crash: "We have looked at several cases where we firmly believe it [was] market manipulation and there are more coming up."
These questionable lending practices and the huge amounts involved have rekindled anger among Icelanders towards the island's business elite. Former Kaupthing CEO Hreidar Már Sigurdsson's house was doused with red paint on Wednesday night, the latest in a series of similar attacks on high-flying businessmen and entrepreneurs. The new revelations are even more galling considering the nation has recently agreed to shoulder two hulking loans, $4 billion from the U.K. and $2.4 billion from the Netherlands, to cover the crippling debt owed to European savers who lost their money when Iceland's banks crumbled.
Former chairman of the board of Kaupthing, Sigurdur Einarsson, has denied any wrongdoing, claiming in an Aug. 5 editorial in the daily Morgunbladid that "anyone who has the chance to review the material in the report can see that Kaupthing was in a fine position at the end of last September." Meanwhile, former CEO Sigurdsson told state broadcaster RÚV that the loans granted to parties associated with the bank's owners were within legal guidelines.
Even so, Kaupthing's initial reaction to the leaked report gave the impression the bank had something to hide. At first, Kaupthing attempted to prevent coverage of the information in the local media with a gag order on grounds of client confidentiality. The injunction has since been retracted, as it only applied to RÚV, and other news outlets have been freely reporting on the document since it appeared online.
Prime Minister Jóhanna Sigurdardóttir condemned the gag order at an Aug. 4 press conference, stating that the principles of bank secrecy and client confidentiality may not be used to hide market manipulation in a society that demands transparency.
With the former government having folded under the public's anger over its seemingly lax attitude towards big business corruption, Sigurdardóttir took the reigns from a platform based on exposing the roots of the economic downfall and overhauling the regulatory system. The mainstay in her push to salvage the nation is Iceland's application for membership to the European Union. Many Icelanders believe that joining a larger regulatory framework and currency area will keep its financial sector on the straight and narrow — and help it avoid another devastating fall.
"These loans just serve as a nasty reminder of how corrupt things had gotten here," says Sigurdur Gudmundsson, an out-of-work engineer. "This is such a small society, so businessmen, regulators, the media and politicians all end up in bed together. We need to be part of a larger system. Otherwise we're doomed to repeat these horrible mistakes."
By Jonas Moody / Reykjavik
http://www.time.com/time/business/article/0,8599,1915524,00.html?xid=rss-business
"We chased the rumours but the truth always seemed just out of reach.
Speculation that the economy had grown fat on the spoils of money laundering for the Russian Mafia seemed too far fetched, while claims that the complicated cross-ownership structure of the banks meant that they were one step away from financial catastrophe were difficult to prove.
As my colleague Rowena Mason points out today on page five, those rumours turned out to be just the tip of the iceberg.
The collapse of Iceland's banking system has uncovered a succession of scandals that beggar belief. And the revelations have only just begun.
The loans debacle at Kaupthing will likely be repeated at Glitnir, Landsbanki and other banks as the numerous regulatory investigations start to uncover the truth of the Iceland story.
The lessons will be many but one thing should not be overlooked – while the Icelanders will rightly take the blame for many of their own problems, they should not shoulder the whole responsibility.
There were many in the City who were quite content to ignore all the warning signs and rumours when the times were good, happy to make hundreds of millions of pounds in fees and brush any worries under the carpet.
The relationship between investment banks and their Icelandic clients were seen as too valuable to jeopardise.
Rocking the boat was considered unacceptable and critical reports – and there were many – were kept firmly locked up until after the credit crisis hit. Ultimately, it was the taxpayer who lost out, both in Iceland and in Britain."
More at: http://www.telegraph.co.uk/finance/comment/6034595/Icelandic-rumours-pale-beside-the-truth.html