You are viewing the NationofChange archives. For the latest news and actions, visit the new
Get Email Updates | Log In | Register

Iceland Did it Right...and Everyone Else is Doing it Wrong

Washington Blog / News Report
Published: Friday 30 November 2012
“Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net.”
Article image

Nobel prize winning economist Joe Stiglitz notes:

What Iceland did was right. It would have been wrong to burden future generations with the mistakes of the financial system.

Nobel prize winning economist Paul Krugman writes:

What [Iceland's recovery] demonstrated was the … case for letting creditors of private banks gone wild eat the losses.

Krugman also says:

A funny thing happened on the way to economic Armageddon: Iceland’s very desperation made conventional behavior impossible, freeing the nation to break the rules. Where everyone else bailed out the bankers and made the public pay the price, Iceland let the banks go bust and actually expanded its social safety net. Where everyone else was fixated on trying to placate international investors, Iceland imposed temporary controls on the movement of capital to give itself room to maneuver.

Krugman is right.  Letting the banks go bust – instead of perpetually bailing them out – is the right way to go.

We’ve previously noted:

Iceland told the banks to pound sand. And Iceland’s economy is doing much better than virtually all of the countries which have let the banks push them around.

Bloomberg reports:

Iceland holds some key lessons for nations trying to survive bailouts after the island’s approach to its rescue led to a “surprisingly” strong recovery, the International Monetary Fund’s mission chief to the country said.

Iceland’s commitment to its program, a decision to push losses on to bondholders instead of taxpayers and the safeguarding of a welfare system that shielded the unemployed from penury helped propel the nation from collapse toward recovery, according to the Washington-based fund.


Iceland refused to protect creditors in its banks, which failed in 2008 after their debts bloated to 10 times the size of the economy.

The IMF’s point about bondholders is an important one:  the failure to force a haircut on the bondholders is dooming the U.S. and Europe to economic doldrums.

The IMF notes:

[The] decision not to make taxpayers liable for bank losses was right, economists say.

In other words, as IMF put it:

Key to Iceland’s recovery was [a] program [which] sought to ensure that the restructuring of the banks would not require Icelandic taxpayers to shoulder excessive private sector losses.

Icenews points out:

Experts continue to praise Iceland’s recovery success after the country’s bank bailouts of 2008.

Unlike the US and several countries in the eurozone, Iceland allowed its banking system to fail in the global economic downturn and put the burden on the industry’s creditors rather than taxpayers.


The rebound continues to wow officials, including International Monetary Fund chief Christine Lagarde, who recently referred to the Icelandic recovery as “impressive”. And experts continue to reiterate that European officials should look to Iceland for lessons regarding austerity measures and similar issues.

Barry Ritholtz noted last year:

Rather than bailout the banks — Iceland could not have done so even if they wanted to — they guaranteed deposits (the way our FDIC does), and let the normal capitalistic process of failure run its course.

They are now much much better for it than the countries like the US and Ireland who did not.

Bloomberg pointed out February 2011:

Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.


“Iceland did the right thing … creditors, not the taxpayers, shouldered the losses of banks,” says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. “Ireland’s done all the wrong things, on the other hand. That’s probably the worst model.”

Ireland guaranteed all the liabilities of its banks when they ran into trouble and has been injecting capital — 46 billion euros ($64 billion) so far — to prop them up. That brought the country to the brink of ruin, forcing it to accept a rescue package from the European Union in December.


Countries with larger banking systems can follow Iceland’s example, says Adriaan van der Knaap, a managing director at UBS AG.

“It wouldn’t upset the financial system,” says Van der Knaap, who has advised Iceland’s bank resolution committees.


Arni Pall Arnason, 44, Iceland’s minister of economic affairs, says the decision to make debt holders share the pain saved the country’s future.

“If we’d guaranteed all the banks’ liabilities, we’d be in the same situation as Ireland,” says Arnason, whose Social Democratic Alliance was a junior coalition partner in the Haarde government.


“In the beginning, banks and other financial institutions in Europe were telling us, ‘Never again will we lend to you,’” Einarsdottir says. “Then it was 10 years, then 5. Now they say they might soon be ready to lend again.”

And Iceland’s prosecution of white collar fraud played a big part in its recovery:

[The U.S. and Europe have thwarted white collar fraud investigations ... let alone prosecutions.] On the other hand, Iceland has prosecuted the fraudster bank heads (andhere and here) and their former prime minister, and their economy is recovering nicely… because trust is being restored in the financial system.

America is too controlled by

America is too controlled by the wealthy and its corporate interests. These worms do not care about capitalism if it interferes with their mega-profits.Lets bring back state run banks. We allow the rich to make the laws that benefit them , then profit from those laws, then abuse all systems allowed to them, profit from them...screw the economy and each other then get bailed out with our tax dollars. The elite prosper more from our "socialism" then does the average working person.

What happened to the bank

What happened to the bank model of North Dakota? that works for the people of that State? What happened to the eminent domain taking of foreclosed property from the banks and reselling to the general public so the State and county gets its property taxes and, does not have to wait for the banks to sell the property that works!! What happened to the German model that places the
employees in a bargaining position so the corporation cant just outsource and make decisions that ruin our enviroment changing corporate laws thats works!
I am afraid that even a glimpse of a better economy means people forget the past and we will relive this mess again. Bring the fight to them Please!!! change what we can for our future.

When I originally looked at

When I originally looked at this article, I was thinking it would be about the other big thing Iceland has done right and most of the big economic powerhouse countries are doing wrong - Iceland is on a track to be sourcing almost all of its energy needs from renewable energy, and they're farther along toward this goal than almost any other country. Of course, the high-temp geothermal energy they've got access to all over their nations is relatively rare in much of the rest of the world, but at least they are doing the work to make use of it rather than doing the easy thing and only planning for one election cycle. Iceland is sounding like a very sensible place to live, if you ask me - if I was going to live on a tiny island nation, I'd chose Iceland over one in the Carribean, any day.

I apologize for this long

I apologize for this long comment. It is not a mere rant, but it needs to be said. Most of you should be able to embrace the import of this message. The far right would want to condemn anyone making such a proposal, but here it is:

You guys are, basically, right on. We need real solutions - solutions we have not seen before. Einstein said we cannot expect those in control of our world to solve the problems they have created, and continue to defend . . . by any means necessary. Like one of those big-shot bankers told a congressional hearing right as the big global collapse occurred, "We did nothing wrong." He was right! It is the right and proper solution for money-hungry fiend-leaders of capitalism/the plutocracy to do. They must protect their power at all costs . . . to everyone else/the 99%.

I realize the change we need is long term, nevertheless, it is what we need and the sooner we get busy build the critical mass to make it happen, the sooner we shall reap the solutions that stop the paradigm that only works for the 1%.

We can keep repeating the same old half measures, leaving the 1% in control of our democracy, our lives, and the future of our natural habitat: earth - we keep reaping the decade of our quality of life through loss jobs, loss income/wages, and loss of entire life support system(s). This is insane. But we seem powerless to wring justice from the corporate elite. We are not. But the challenge is formidable, and yes, Iceland has taken a giant leap in the right direction.

Needless to say, the 1% still controls our world and their economic/fiscal paradigm of profits or life, and money or humanity still reign and will have the final world. Iceland cannot succeed very long within the context of our global paradigm of plutocracy and capitalism/monetary economics.

The path we must take, like it or not, is the one extensively outlined by the one world movement, now referred to as The Zeitgeist Movement. We either solve cause of these problems, which have plagued us ever since we began using money and person/corporate wealth as the fodder for quality of life.

We need access to the resources, vital and common, that sustain life and add high quality to it. Those resources are more than sufficient to satisfy the needs of every single life form on the planet - that includes every human being alive today, and on into the future. The only barrier to full access is capitalism/monetary economics, and social control by the wealthy elite emerging from it. The corporation (a legal person, by law, created with a mandate of perpetually increasing profits for its stock holder/owners.

We must abandon that paradigm. learn how -visit:
http://www/ and study the Fresco-based vision in depth. Yes, it is a radical departure from "business as usual." But isn't that what we are talking about here? Isn't that what Iceland is attempting to do?

We cannot confine ourselves to the same old political and economic gimmicks, over and over, and over while expecting different outcomes. As long as the 1% rule they will do what benefits the 1%, and we should no by now - they will go to war, invoke domestic devices like The Department of Homeland Security and all the other political and domestic defense agencies we have today to control social uprising for change (whether foreign or domestic). Our entire political power structure is designed to prevent the kind of changes we need for the survival of our species.

Kudos. i think the basic way


i think the basic way to start is to realize that both our parties are flip sides of the same coin in a rich man's pocket

To think otherwise is not accurate, since it takes BOTH parties to pass the legislation that has gutted the Constitution and given our freedoms to the corporations. By corporations note that i don't mean some nebulous legal entity of vast resources which can thus make better decisions. i mean the psychopathic personalities of the uber-wealthy people that make EVERY corporate decision based upon profit for them and their friends.

Granted, not all corporations respond this way, but enough large and extremely powerful corporate heads do this enough to inarguably have huge amounts of power and influence on society through the govt and other avenues. (education, direct wage/benefit influence, etc) If they did not have this influence, the legislation they propose would NOT be happening, at least without congresspersons, administration personnel, court justices, and agency employees/mgmt assisting in the usurpation of the societal contract.

Civilization purports to be a group effort to support a diverse group to increase survival through improved protections, better food and critical supply functions and other areas of cooperation.

By literally attacking the working people of the country, the 99%, the wealthy have violated their social contract and thus are subject to whatever constraints we choose to force upon them. That is the ONLY problem; getting together as a large enough group to force the needed changes. Dissolution of Corporate Charters is one possible avenue. Changing corporate law to force social/environmental sanity another. Making the decision makers PERSONALLY responsible and liable to civil suits, tort damages, criminal prosecution, and for some, execution for crimes against humanity.

In our country, the uber-wealthy have bought our congress and made legislation which not only attacks all levels of working people, but also SUBSIDIZES the corporations and the wealthy.

Tax breaks for the rich? Who pays the infrastructure maintenance they no longer do? You and i. Who supports that big corporation with their subsidies and exemptions? You and i. Who pays their tax refunds when they get more than they put in? You and i.

Where we as a nation blew it this last election cycle was not realizing as a whole that BOTH republicans and democrats (with extremely rare exceptions) MUST get kicked out of office. They have been in power for over 90 years of increasing political, economic, and social damage. They have literally no-one else to blame.

To vote for ANYONE other than the rep/dem paradigm forces them to realize that their agenda is no longer accepted as the top priority to us. It proves that we are dissatisfied with the decisions they make. We no longer trust them. Voting for the Yin vs the Yang is NOT breaking the cycle.

By voting 3rd party we force Romney to make Ron Paul noises as he tried to lie and convince people that he was someone he wasn't. Threw Obama off there, but he made those noises BECAUSE so many millions were showing how important Ron Paul's priorities were to THEIR lives. Not what the rep/dem propaganda machine tried to slant.

It is the ONLY way to force these parties to change. To be fooled into thinking one or the other is a "lesser evil" lets them drive the conversation and direction as this pattern does NOT force addressing other, more critical issues.

Iceland also imprisoned

Iceland also imprisoned corrupt bankers.

Iceland did it right - - -

Iceland did it right - - - more or less. Iceland doesn't have republicans / or SNAKES Republicans are pushing this fiscal cliff...PaPa John's is cutting hours and pay for their employees because they are dis-satisfied with the results of the Election. . SHOULD I SAY SOMETHING ABOUT - HOW AMERICAN THEY ARE BEING ??? IN SUPPORT OF OUR DEMOCRACY????
THERE ARE PETITIONS GOING AROUND ALL FIFTY STATES CALLING FOR SUCCESSION......sound along the same lines as the swiftboat attack - - - any-body know anything about that ??
The TEA Party for smaller government is going to get their more republicans.....
one card off the bottom of the deck... too many....
but look as they strutt around like peacocks - - proud of their doings

This is a little like what

This is a little like what Plato wrote about in The republic. He basically said that the "producers" which are today our bankers, merchants, and others who find material wealth most important, can have all of the gold and silver they want--all of it--except that which makes a very basic lifestyle for the community possible.

That's what Iceland did. When the "producers" took too much at the expense of society, Iceland took it back and said "Too bad, you broke your social contract."

And they are better off because of it. This demonstrates that although Atlas Shrugged, the people who took so much can go to the hills, or Hell, if they want. And we'll all be better off because of it. We don't need them as much as they need us.

"We don't need them as much

"We don't need them as much as they need us." That's an empowering statement. You're absolutely right! And in "rightness" is potentially great power. We have the power to stop, en masse, doing business with any of the purveyors of evil whose greed is bankrupting the country's future in so many ways. So why don't we? Why can't we seem to get it together in massive numbers to effect change? Get 'em where it hurts and get their attention. We must remember THEY NEED US.

I´m afraid that the Noble

I´m afraid that the Noble laureate should really get some first hand information on how things really are before he gives such erroneous information. Icelandic taxpayers are paying a LOT OF MONEY to cover the costs of the banking crash. The bankruptcy of the Icelandic Central Bank which had exposed itself to the failed Icelandic banks is for example a heavy burden. I´m afraid that the information on this web site is a bit fanciful to say the least. Iceland is being used as a poster child for people abroad who have a lot of different political agendas but have little idea of what is going on in reality.
Jon Thorsteinsson, Reykjavik, Iceland.

I agree with WMARTIN46 on

I agree with WMARTIN46 on this one. Since most of the biggies went with the "bailouts", the different policies in Iceland probably had a different result from what would have happened if everybody had let the banks fail. In any event, this is pretty much speculation since we can only observe the results of what actually happened.

Giving loans is not bailing

Giving loans is not bailing someone out, it is prolonging the inevitable - bankruptcy. The US, Greece, Spain, Ireland, et. al can keep kicking the bankruptcy can down the road for a few more years but the bill will come due sooner rather than later and investors will be forced to eat their losses.

The sooner this happens, the better. Even better still if these losses could get served up in smaller bite sized chunks. Look, there is no fiscal cliff and there is life after a country scale bankruptcy. Nobody said Iceland's solution was not painful, but it was the right thing for them to do and it is the right thing for more countries, the US and EU included.

Let's remember that Iceland

Let's remember that Iceland is a "country" of about 350,000 people--hardly a medium-sized city, but the standards of G-20 countries. The amounts of money that was involved, although very sizeable, does not come close to the size of the hole that the finance "community" created through-out the rest of the world.

Before anyone can claim that "Iceland did it right, and others are doing it wrong"--they would have to run simulations of the world's economy/financial system to see what would happen if the banks had not been bailed out. To date, no one has done that. It's possible that in some of the smaller countries, with sizable money infused into those countries via "investment" that an "Iceland solution" might well also work. But for the US, and Europe at large, it is unlikely that anything but a major depression would have resulted.

Unfortunately, we still have a hellava mess on our hands--because the fundamentals of "regulation" ave not been cleaned up in the US. The EU is such a mess that it will probably never get cleaned up.

"Before anyone can claim that

"Before anyone can claim that "Iceland did it right, and others are doing it wrong"--they would have to run simulations of the world's economy/financial system to see what would happen if the banks had not been bailed out. ... But for the US, and Europe at large, it is unlikely that anything but a major depression would have resulted."

Here's a "simulation:" Take the VERY SAME AMOUNT OF MONEY that our government shot off to the Banks, and instead spend it DIRECTLY bailing out -- NOT the Banks, but -- the HOMEOWNERS, and MANDATE that the Banks PAY a penalty for having sold out their own customers and contracts.

Result: the banks DO get their money (what money was not gotten by shorting the homeowners), but they have to get it from the homeowners themselves. The homeowners get to keep on living where they want. The Banks eventually recover, but on OUR terms.

Anything wrong with that "simulation" -- beyond the fact that the Banks OWN our "government?"

We had a major depression in

We had a major depression in 2008 and it is still ongoing.

There is no way to game the system so that investors don't lose. Poor investment choices were made and even poorer business decisions were enacted by those at the top. Choices have consequences and it is high time that people start paying for their poor choices. Really, things will be painful, mostly for the 1%, but by letting these bad businesses and stupid investors fail, we will have a much better economy and be much better off than we are today.

It is pathetic that the US has constructed a system where you can be stone stupid and still not be allowed to fail. Of course the GOP who is the first to scream personal responsibility, is also the first to scream don't let these corporations fail.

The fact that not a single

The fact that not a single American banker went to jail for causing the greatest international economic disaster in history [there are people doing 25 years behind bars for stealing a pack of cigarettes, under the 3strikes, you're out "law"] is proof that the politicians are in cahoots with the criminals on Wall Street.

I have a great idea for our

I have a great idea for our mentally-challenged politicians:


Now that's a Great Idea!!!

Now that's a Great Idea!!!

We now have lots of trust in

We now have lots of trust in our banking system -- as "in God we trust" dollars. When the banksters cause another crash, we can put even more trust in them, or we could make them "trustees", which we can still do for their last acts.

Look no further than our

Look no further than our compromised politicians who have yet to prosecute one bankster and send them to jail. remember when Geithner didn't pay his taxes and his nomination was in jeopardy and President Obama said he had to have him in that position.

The fix was in right there. Since then Geithner and Obama has protected and shielded wall street and the banksters from any wrong doing. Then the President makes another ridiculous statement that although the banks did some reprihensible things, they did nothing wrong.

Lastly look no further to the media and the part played by MSNBC. This cable network gives you a strong diet of Fox and GOP bashing. But they are mum when it comes to Pres. Obama wrongdoing, and Democrat and corporate wrong doing, .

PBillP is right, of

PBillP is right, of course.

What we have in the US is socialism for the bankers, which is about the stupidest idea ever, and something you'll never learn in Econ 101.

Free Enterprise works on a system of profits and losses, and if the banks do dumb things, then they should lose their capital (that's the "losses" part).

Hooray for Iceland.

Danh, you are correct, except

Danh, you are correct, except - what we have here in the US is a plutocracy, not a democracy, and capitalism, instead of another global economic paradigm. The immense catalog of dire economic and financial injustice is what comes with our form of management of access for society to common, vital, all resources. We cannot solve these problems within any form of monetary economics (capitalism, socialism, fascism, and any other form of monetary-ism). Society as we know it today has been built on monetary systems which have always benefitted the 1% over the 99%. Yes, we have enjoyed, and will probably continue to experience the better economic state of social quality of life, along with the down side of extreme poverty and every level of working class economic manipulation. The rich shall continue getting richer, and the working class will continue slaving our asses off for that 1%. That is the system that control society. We can change it, but not with the convention wisdom of today, and the past. Not with capitalism and plutocracy - and I must add - monetary economics will always be controlled, governed, or otherwise rule/reigned over by the wealthiest 1% of society. How long will it take us to escape our mass culturally engrained denial of the obvious, escape the constant psychological market conditioning incessantly drilled into our minds by the mainstream mass media (now, owned and controlled by "The Corporation") - and realize this? It won't be forever, because "The Corporation" is succeeding in destroying our life support system in their maniacal obsessive-compulsive sociopathic avarice for wealth/profits.

So much for those that demand

So much for those that demand that big corporate losses, as those in the financial sector in 2007-9, need to be socialized, BUT their profits need to be Privatized.
Let me make that clear.
Socializing losses are tax payer bail outs.
Privatizing profits are Tax Cuts for the Rich and for Corporation.
This is the guiding principal of the GOP economic policy.
And it doesn't work.

Comment with your Facebook account

Comment with your Disqus account

Top Stories

comments powered by Disqus

NationofChange works to educate, inform, and fight power with people, corruption with community.

If you would like to stay up to date with the best in independent, filter-free journalism, updates on upcoming events to attend, and more, enter your email below:

7 Compelling Reasons Why You Should Support NationofChange

Our readers often tell us why they’ve decided to step up and become supporters. Here are some of the top reasons people are giving.

1. You’re keeping independent journalism alive
The corporate owned media has proven that it can’t be trusted. In a media landscape wrought with spin and corruption, NationofChange stands in very scarce company.

2. You’re sticking it to the rich, powerful, and corrupt
When you have money in this country you can get away with damn near anything, and they do. NationofChange isn’t afraid to expose these criminals no matter how powerful they are.

3. Your donation is 100% tax-deductible
NationofChange is a 501(c)3 charity. People tend to assume that many other organizations are (most nonprofits are NOT) but it’s that 501(c)3 status is a bit more rare than you think.

Read the rest...