Iceland's economy recovering well after bankers jailed
Iceland faced a similar economic collapse to the United States and the Eurozone in 2008. But instead of bailing out the banks, Iceland paid off loans for consumers and threw bankers in jail for corruption. Now Iceland's economy is recovering and growing faster than the US and European economies. We're taking a closer look at this story from the Current community. Check it out and add your two cents:
Submitted by gypsygirl1965
An article from Bloomberg.com says Iceland proves that there's a different – and possibly better – way to recover from a financial meltdown. They let homeowners wipe out debt up to 110 percent of the property value. They declared loans indexed in foreign currency illegal and said debtors could pay them back in krona, their local currency. Via Bloomberg:
These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.
In addition to easing consumer debt, Iceland reduced government spending and increased revenue by raising taxes and cutting deductions that mainly benefited the well-off, a path the U.S. might profitably emulate. In fact, relief for overburdened U.S. consumers is a cause promoted by former U.S. Federal Deposit Insurance Corp. Chairman Sheila Bair in a new book published this week. Bair would have done more to aid sinking homeowners and done less for banks, but she says her efforts were blocked by Treasury Secretary Timothy Geithner and others.
It worked in Iceland. A deficit that reached 13.5 percent of gross domestic product in 2009 fell to 2.3 percent last year. The IMF predicts Iceland will have a primary surplus (excluding interest on debt) of 1.5 percent this year.
Iceland also held the CEOs of large banks accountable, and put many of them in prison on corruption charges.
The community responds:
JustZ: "Iceland did exactly what needed to be done... for their economy. Allowing the banks in Iceland to fail, and aggressively prosecuting the criminals responsible, was both daring and brilliant.
However, I believe the 'economic scale' would have prevented the same outcome for the United States. Iceland's GDP: 14.06 Billion. United States GDP: 15 Trillion.
While we certainly could have prosecuted the most egregious CEOs, Board Members, and politicians who were directly responsible for creating the global meltdown, I remember several financial gurus explain that allowing America's banks to fail like the Dutch did, would have meant allowing banks that did business with every country on planet earth... to fail. And that the repercussions of such a move could have ignited a world wide 'Depression'.
I suppose we'll never know."
mrpuma2u: "We need small community based banks and credit unions. Banking at Chase or BOA? You are banking with the devil."
warman1138: "Hooray for Iceland! They have shown the way and everone should follow suit. Who needs big banks or investment banks? NOBODY!"Vic_Romano: "Why aren't we doing the same? Because our government has been bought. Simple as that."
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