People protested outside the Icelandic Parliament on Saturday as Icelanders headed to the polls to vote on a referendum to repay British and Dutch citizens for bailing out Icesave
NEW YORK (Fortune) — It’s time to start paying attention to the financial sinkhole that Iceland is trying to climb out of — the view from inside of it is eerily similar to our own.
An Icelandic savings bank, Icesave, had attracted billions in deposits from hundreds of thousands of British and Dutch citizens, due to the phenomenally high interest rates it offered. Icesave collapsed in 2008, for much the same reason Lehman Brothers, WaMu, and hundreds of local savings banks did: its bankers used their cash to make complicated, bad, leveraged investments, mostly on real estate.
The British and Dutch have made their citizens whole, bailing out Icesave after it became clear the Icelandic government didn’t have the resources to do the same.
Now, they expect to be repaid. But in a referendum there this past weekend,only 1.8% of voters favored a plan to pay back the $5.3 billion Iceland owes. It would have worked like this: the International Monetary Fund would loan Iceland the cash to pay back the British and Dutch. Iceland, then, would repay the IMF.
To call the rejected terms loan-sharking would be a disservice to usury. They called for every Icelandic family to essentially throw a quarter of its income towards servicing the loan for the next eight years. But this isn’t the end: one way or another, the bill will come due, and Iceland’s 320,000 citizens will be paying for the hubris of a few hundred of their own, who dubbed themselves “investment bankers.”
The amount owed — $5.3 billion — sounds like a rounding error to Americans, but, per capita, it would be the equivalent of the United States taking on a $5 trillion debt. Sounds impossible, until you consider that our real bailout tab, as calculated by the New York Times, is already $2 trillion. Moreover, the government has obligated itself to pay out $12.5 trillion if things get worse. In Vanity Fair last April, Michael Lewis wrote, “Iceland instantly became the only nation on earth that Americans could point to and say, ‘Well, at least we didn’t do that.’”
Yet in a pretty real way, we did do “that.” We have a more sophisticated central banking system, and there are more countries, like China, in whose interest it is to protect the value of the American dollar, thanks to their ownership of our national debt. In that crucial way, we’ve dodged Iceland’s true peril: watching the value of its currency, the króna, crash against the debt it owes in foreign currencies like the sterling and euro. It’s looking more and more like our craftiest bankers factored the inimitable strength and guarantee of the U.S. dollar into their reckless gambles.
But the rest of us are really just lucky that the dollar can survive these hurricane-level economic forces without blowing apart. One way or another, the bill is coming due, and America’s 300 million citizens will be paying for the hubris of a few thousand of their own, who dubbed themselves “investment bankers.”
While Lewis summons a gentle humor to chronicle a tiny nation’s transformation from European fishing capital to destroyer of capital markets, it’s worth remembering America’s Rube Goldberg financial machinery sprung from a society that was once far more concerned with agriculture (and later, manufacturing) than with inventing complicated and opaque ways to manufacture wealth.
It’s too easy and wrong to look at Iceland as being somehow dumber than we were. Their problems aren’t just an outgrowth of our financial handiwork; their problems are our financial handiwork. And Icelanders have thoroughly rejected being placed in hock to exonerate the tiny segment of the population that threw their country into chaos.
In our democracy, we didn’t have that choice. From Treasury Secretary Hank Paulson’s ramming of TARP through Congress, to Treasury Secretary Tim Geithner’s decision to abandon subtlety and mainline dollars into bank balance sheets, even our presidential election had little impact on our government’s deployment of huge amounts of capital to save our obese banking system.
Icelandic journalist Iris Erlingsdottir wrote in the Huffington Post, “While we have been endlessly debating IceSave, our unemployment rate has continued to climb, the number of insolvencies has continued to increase, and the number of public services has continued to decrease. Other scandals of comparable magnitude and abuse of taxpayer money — but involving only Icelanders — are being ignored by the Icelandic media.” Change a few nouns — health care, Citigroup (C, Fortune 500) — and Erlingsdottir is writing about Washington as Reykjavik.
Just because the crisis has been “managed” doesn’t mean it’s over. As economist Simon Johnson writes, “The true fiscal cost arising from our recent financial excesses is the increase in net government debt held by the private sector. This will likely amount to around 40 percentage points of GDP.” Servicing that debt will likely affect our promise as a nation, not for years, but decades.
Whatever settlement Icelanders finally swallow, their financial system, at its peak just a minor moon in the constellation, is already as barren as the island’s volcanic bedrock. But precious little has changed about Wall Street’s massive gravitational pull in the U.S. and the world.
Our banks are still too big to fail, their boards are still poorly composed, we have no Consumer Financial Protection Agency, no systemic regulator, no resolution authority, and no reform of mortgage securitization or ratings agencies, two of the institutions that most enabled the crisis to occur. We’ve been distracted from the task of preventing another crisis from happening by the task of minimizing the current one, and as a result, we’ve done neither, while allowing our other domestic problems to snowball.
In Iceland, it’s expected the ruling political party could be forced to step down if it can’t come up with a loan plan the public approves of. The closes thing the U.S. gets to a bailout referendum is the 2010 midterm election. It’s still unclear what happens to Iceland next, as it grapples with recovering from its terrible financial fever. But it might be time to stop treating Icelanders’ predicament as a sad footnote to the global crisis, and start searching for lessons on what, save massive structural reforms, is still in store for us.
The U.S. is playing a double game in Afghanistan -- fighting terrorists that it itself created. That’s according to Iranian President Mahmoud Ahmadinejad, who’s visiting Kabul. Ahmadinejad’s comments.
It’s no secret that many think the fierce mood of partisanship is routinely crippling Washington. While most of the fur flies between the major parties in Congress — with the president weighing in occasionally to keep his party leaders on message — this week has seen an outbreak of hostilities in a less traditional venue: between the Supreme Court and the president.
In a controversy stretching back to January’s State of the Union Address, Chief Justice John Roberts told a group of law students at the University of Alabama that President Obama’s very public dissent from the Court’s Citizens United ruling, which effectively rolled back most existing restraints on corporate funding of political campaigns, was a provocation to the court’s cherished independence.
“On the other hand, there is the issue of the setting, the circumstances, and the decorum,” said Roberts. “The image of having the members of one branch of government standing up, literally surrounding the Supreme Court, cheering and hollering while the court — according the requirements of protocol — has to sit there expressionless, I think is very troubling.”
It’s true that Obama pulled few punches in characterizing the Citizens United ruling, which had been handed down just prior to the State of the Union speech.
“Last week, the Supreme Court reversed a century of law to open the floodgates for special interests, including foreign corporations, to spend without limit in our elections,” Obama said. “Well, I don’t think American elections should be bankrolled by America’s most powerful interests, or worse, by foreign entities.”
Some of the lawmakers on hand interrupted Obama’s remarks with cheers of support. But television cameras panned the Court members in attendance and caught Justice Samuel Alito mouthing the words “not true.”
In Washington and in public debate, response to the dust-up split down partisan lines. Conservatives took issue with Obama’s criticism of the court, and liberals decried Alito’s breach of protocol. Outside of Washington, though, recent polling has shown that the decision is widely unpopular with Americans across the ideological spectrum.
Of course, Roberts wasn’t always so hands-off with the Supreme Court. When he worked for the Reagan administration, he was an aggressive public advocate pressuring the Court and was privately highly critical of how it organized its own business.
And for all the hubbub, it’s worth recalling that smack-downs between the two branches of government, while rare, are not unheard of. In his memoir, President Clinton was critical of the 2000 Bush v. Gore decision that ended that year’s election; Nixon fumed about the Burger Court’s ruling that he couldn’t protect himself during Watergate with “executive privilege;” and way back in 1936, Franklin Roosevelt proposed an additional three justices to the Court so that he could appoint them himself and skew the Court’s decisions in favor of his New Deal proposals.
But it is somewhat rare that these battles are as public or intense as this one appears to be getting. That may be because the Court’s decision was an historic one justifying intense debate, or it may be because politics are getting more conflict-driven across the board.
Atlanta – The Obama administration has proposed using United Nations-guided principles to expand a type of zoning to coastal and even some inland waters. That’s raising concerns among fishermen that their favorite fishing holes may soon be off-limits for bait-casting. In the battle of incremental change that epitomizes the American conservation movement, many weekend anglers fear that the Obama administration’s promise to “fundamentally change” water management in the US will erode what they call the public’s “right to fish,” in turn creating economic losses for the $82 billion recreational fishing industry and a further deterioration of the American outdoorsman’s legacy. Proponents say the Interagency Ocean Policy Task Force established by President Obama last June will ultimately benefit the fishing public by managing ecosystems in their entirety rather than by individual uses such as fishing, shipping, or oil exploration. “It’s not an environmentalist manifesto,” says Larry Crowder, a marine biologist at Duke University in North Carolina. “It’s multiple-use planning for the environment, and making sure various uses … are sustainable.” (Amateur outdoorsmen have been fighting for their rights for years, as the Monitor reports here.)
New way to manage marine resourcesFaced with the prospect of further industrialization along America’s coasts and the Great Lakes (wind turbines and natural-gas exploration, for example), the task force is charged with putting in place a new ecosystem management process called marine spatial planning. Marine spatial planning (MSP), according to the United Nations, is “a public process of analyzing and allocating the spatial and temporal distribution of human activities in marine areas to achieve ecological, economic, and social objectives that usually have been specified through a political process.” That kind of government-speak scares Phil Morlock, director of environmental affairs at the reel-and-rod maker Shimano. Mr. Morlock points to references by the ocean task force to “one global sea” as evidence that what’s really being proposed are broad changes to America’s user-funded conservation strategy, potentially affecting even inland waters. “I suggest that the task force recommend our model to the United Nations rather than us adopting the United Nations model,” he says in a phone interview. “The American model is the best in the world, so our question is: Why seek the lowest common denominator?”
Protections for recreational fishermenMr. Obama has said he will not override protections put in place by Presidents Clinton and Bush that established recreational fishermen as a special class.
But critics still worry about the Obama administration’s ties to environmental groups that espouse “anti-use” policies that put some habitats out of reach even for rod and reel fishermen, who take only 3 percent of America’s landed catch every year. “Angling advocates point out that senior policy officials on the task force seem inclined to ally themselves with preservationists and environmental extremists who want to create ‘no fishing’ preserves, with no scientific justification,” writes ESPN.com’s Robert Montgomery. On the other hand, nonpartisan experts say the task force has already made strides in better recognizing various stakeholder groups, including recreational fishermen, and that it doesn’t intend to undermine the ability of states to manage their natural resources, as many fishermen fear. “There’s been huge progress by the task force in terms of being more inclusive in thinking about economic, ecological, social, and political concerns,” says Mr. Crowder at Duke. “The paranoia – and there is paranoia on all sides – is that the process will be captured. My hope is that mutual concern gets people to the table.” The final report of the task force is expected in late March. Congress will decide its fate, unless Obama issues an executive order establishing MSP as the law of the water.
Atlanta – The Obama administration has proposed using United Nations-guided principles to expand a type of zoning to coastal and even some inland waters. That’s raising concerns among fishermen that their favorite fishing holes may soon be off-limits for bait-casting. In the battle of incremental change that epitomizes the American conservation movement, many weekend anglers fear that the Obama administration’s promise to “fundamentally change” water management in the US will erode what they call the public’s “right to fish,” in turn creating economic losses for the $82 billion recreational fishing industry and a further deterioration of the American outdoorsman’s legacy. Proponents say the Interagency Ocean Policy Task Force established by President Obama last June will ultimately benefit the fishing public by managing ecosystems in their entirety rather than by individual uses such as fishing, shipping, or oil exploration. “It’s not an environmentalist manifesto,” says Larry Crowder, a marine biologist at Duke University in North Carolina. “It’s multiple-use planning for the environment, and making sure various uses … are sustainable.” (Amateur outdoorsmen have been fighting for their rights for years, as the Monitor reports here.)
Iran against U.S. in peaceful Afghanistan face-off (VIDEO)
The U.S. is playing a double game in Afghanistan -- fighting terrorists that it itself created. That’s according to Iranian President Mahmoud Ahmadinejad, who’s visiting Kabul. Ahmadinejad’s comments.
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