21 Apr 2011

Iceland money update

It was a long while back now that Stroud District Council found it had £3m in the Iceland bank, Glitner - see here - well much has been said since then about the risks of investments and how Greens consider it would be better to use ethical banks/mutuals which were not hit in the same way by the crisis - or to invest some of that money in something that brings in a return like renewables....but I wont revisit those issues again at this moment...here is an update re the Iceland investments.

Cartoon: borrowed from Kipper Williams of The Guardian - see more here

At Scrutiny a couple of weeks ago we heard that Stroud was still hoping to get some of the Iceland money back and Councils would now be going to court - although it seems there are still lots of hoops to go through - see here. One question by a councillor at the Scrutiny meeting was what was that £3m for as we have not once heard, 'we can't afford that because of losing the Iceland money'. It is indeed strange as these reserves seem to just have been sitting there - not the view of our Finance Department I'm sure - now of course we just don't have such reserves...although they still could be put to use - see Green move at recent Full Council here.

Interestingly 58% of the Icelandic public voted against the latest plans to try and pay back UK savers for the £3.5bn lost by British and Dutch investors in Icesave. Click read more to here from Positive Money. Also worth a look is a great cartoon on the crisis of capitalism here.
Positive Money write of this: "After borrowing 3 times the GDP of the Icelandic economy, doubling house prices on the back of bribing economists to provide favourable assessments of the highly leveraged country, and entering the UK banking market, Landsbanki, marketed in the UK as Icesave, collapsed during the financial crisis.

"The Icelandic prime minister said the choice was the "worst option", meaning that it now seems likely that the British and Dutch governments will take Iceland to court over the £168 million the Icelandic public are expected to have to cover, after the assets of Icesave have been sold. £168 million doesn't seem like a lot of money, but to a country with a little over 300,000 citizens, the payout could amount to around £600 for every man, woman, and child in the country. One Icelandic commentator said "If all bank losses must be paid by the taxpayer, all bank profits should be kept by the taxpayer", the double standards involved in a system that guarantees enormous private profit and socialised losses are rarely clearer than in Iceland. The father and son team heading up Landsbanki were the two richest people in the small nation.

"The choice of the public to leave it to the courts may not have been the best decision economically, the court will likely rule in favour of the UK and Dutch governments, but the decision to take a stand can only be applauded. Iceland are likely to remain "outsiders" in international financial markets, their credit rating will likely be downgraded once again. The legal process could take up to two years to be resolved, and will likely feature prominently in news coverage when it begins.

In the UK the Independent Commission are due to report back tomorrow, some journalists who were given early access have reported that the report is likely to suggest "firewalls" between investment and retail banking divisions, to prevent newly created money from being easily borrowed by investment banking divisions. Whether this will systemically prevent risky and socially harmful investment banking operations from being funded by money creation is as of yet an unknown.

"It is likely that investment banks will be required to hold their own capital, shielding losses from being absorbed by retail banks holding deposits. Banks have already begun to criticise this, claiming they will be put at an international disadvantage, and they expect ratings agencies to downgrade their ratings accordingly. The banks are also worried about the prospect of having to raise their own capital to form these subsidiary companies, and would prefer a system of "resolution", whereby the investment banking operations are only split into seperate companies in the case of bankruptcy."

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