[Premium] Spain’s nationalisation plan won’t work as the banking system is insolvent

The Spanish banking system is insolvent and the Spanish government simply does not have the wherewithal to clean it up. This is the problem in Spain that has come to a head, particularly now after the rescue of Bankia, Spain’s fourth largest bank. Unless the European Union come to Spain’s rescue, there will be runs on Spanish banks, with contagion rippling outward.

[Premium] Daily commentary: Will Ireland get a bank debt writedown?

This daily commentary is a bronze-level post. Today’s comment is on the Irish desire to get their tracker mortgage obligations written down

Iceland upgrade sure makes default look palatable

A friend commented to me when he saw the story that Iceland had been upgraded by Fitch, the ratings agency, that this “sure makes default look palatable”. Obviously, Iceland is not out of the woods yet but their relative success says there are other ways to get it done

News Links: Iceland fared better by letting its banks fail

Financial news links for 3 January 2012. I posted this first link on twitter yesterday afternoon and it got a ton of retweets. I have seen a lot of people link out to it. Bottom line: the concept that bankruptcy is part and parcel of capitalism resonates with people. And that’s why we are viscerally opposed to bailouts, no matter how much the Tim Geithners of the world want to defend them

Europe’s Transition From Social Democracy to Oligarchy

This appropriation of the economic surplus to pay bankers is turning the traditional values of most Europeans upside down. Imposition of economic austerity, dismantling social spending, sell-offs of public assets, de-unionization of labor, falling wage levels, scaled-back pension plans and health care in countries subject to democratic rules requires convincing voters that there is no alternative. It is claimed that without a profitable banking sector (no matter how predatory) the economy will break down as bank losses on bad loans and gambles pull down the payments system. No regulatory agencies can help, no better tax policy, nothing except to turn over control to lobbyists to save banks from losing the financial claims they have built up.

What banks want is for the economic surplus to be paid out as interest, not used for rising living standards, public social spending or even for new capital investment. Research and development takes too long. Finance lives in the short run. This short-termism is self-defeating, yet it is presented as science. The alternative, voters are told, is the road to serfdom: interfering with the “free market” by financial regulation and even progressive taxation.

There is an alternative, of course

Iceland’s Fair Value Vultures

The country is now suffering a second round of economic and financial distress stemming from the collapse of its banking system in October 2008. That crisis caused a huge loss of savings not only for domestic citizens but also for international creditors such as Deutsche Bank, Barclay’s and their institutional clients

Joseph Stiglitz on Iceland’s Crisis and Recovery

I would say that Stiglitz is right that Iceland did well in large measure because Iceland was not subjected to the kind of austerity that you traditionally see in these kinds of programs and which is an anti-growth policy. We are seeing the negative repercussions of this in Greece. He is also right that capital controls were necessary (at least temporarily). Most importantly, sovereigns should not step in and assume all of the banking sector’s liabilities. Ireland has learned this the hard way

Consent Needed for Debt Repayments

What people don’t realize is that what happened in Iceland has been used as a test case for what’s happening in Greece and what’s happening in Europe, and maybe what happens in the United States

How not to resolve a banking crisis

Much of macroeconomic policymaking is trial and error. This column discusses calamitous error on the part of Iceland’s policymakers, in the hope that others can at least try something else

Was the IMF programme in Iceland successful?

According to the IMF, Iceland has graduated from its Fund-supported programme with unqualified success. This column begs to differ

Four biggest lessons from Iceland’s brush with national bankruptcy

Poul Thomsen wrote an article on the IMF’s blog site about Iceland that I would to highlight. The lessons bear repeating given the economic problems in Europe and the US. The IMF worked with Iceland to stabilise the economy and avoid default after the country got into trouble during the credit crisis in 2008. He draws four principal lessons from the ordeal

Greece now, America in due course

In this interview with Real News Network, Michael Hudson argues that opportunists are using this debt crisis as a grab bag to strip the state of its assets and collect those rents for their own private wealth accumulation. He says what’s happening in Greece is a dress rehearsal for what’s going on in the United States