Optimistic Cynic

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The Sorry Fate of Iceland

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Start reading this tragic tale here:

This North Atlantic volcanic island, which is the size of Cuba, with a population of 320,000 – the size of Coventry’s – is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN’s 2007 ‘best country to live in’ poll. But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the past eight years have been, for most of them and by their own admission, one long party. [Guardian]

Basically, the country is bankrupt. So are most of its people.

To make it worse, it is being threatened by former friends:

The Prime Minister said Britain would seize the assets of Icelandic companies and take “further action against the authorities” over the collapse of the island’s banks.

The diplomatic row, which has echoes of the Cod Wars of the 1970s, erupted after it emerged that more than 100 local authorities have deposits in Iceland. They stand to lose a total of more than £1 billion. British companies are said to have as much as £12 billion in the failed banks and individual savers more than £6 billion. [Telegraph]

But how did these idiots local authorities of Britain come to deposit so much money in Icelandic banks? Quite simply, they offered certified “better” deals:

Back in May when the base rate was 5%, Icesave was offering eye-watering 7.01% on its one-year fixed-rate savings account. The best UK banks could manage was Birmingham Midshires, which paid 6.88%. Icelandic banks offered more bang for your pound, they also appeared safe.

The credit-ratings agencies, whose job it is to assess which banks are most likely to give you your money back, gave them top-grade. Indeed, Standard & Poor’s and Fitch and Moody’s only downgraded some of the banks in the week they went bust. [Sky News]

Presumably, nobody at Standard & Poor’s, Fitch or Moody’s had known about the basic idea of Risk vs Rewards.

This reminds me – no matter how the global economy manages to survive the current crisis, and regardless of what happens to the fate of many investment banks, i-bankers, CEOs etc. – if there is one group of companies that needs to be investigated thoroughly, it is the credit rating agencies. These buggers are paid to avoid precisely this sort of fuck-ups. They are supposed to evaluate risks, which means that they have to disregard what the Suits and Talking-heads are saying and take a detailed look at the actual books. Did they do that? Time and again, names of these same credit rating agencies keep coming up in one failure after another where they have given completely fraudulent ratings. How come these rascals are still standing?

Anyway, what is this troubled country of Iceland to do now? Go fishing, literally:

Now residents are betting that the Atlantic island’s natural resources, primarily fish and geothermal energy, will help the country survive.

“We can live off the land as there are not so many of us, and we have heating, clean water and fish,” said Reykjavik resident Kristinn Johansson, 50, outside a branch of the now- nationalized Kaupthing. “We will be fine. We can eat what we can fish.” [Bloomberg]

Oh dear, how the mighty have fallen! Who is next?

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Written by OC

October 10, 2008 at 12:07 pm

Posted in World

Tagged with ,

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