Did Iceland Run a Giant Ponzi Scheme to Scam British Savers?

Nukumai

tradetime wrote: »

You mis-understand, my point was that if you define the Icelandic Bank as running a Ponzi scheme then you would have to define all failed businesses that operate by paying out income before they earn it as Ponzi, including pension schemes. Obviously they are not, neither the Icelandic Banks, nor most businesses either set out to, or arrive at this stage and then continue to defraud.

Apologies if I misunderstood your intent (though I did find some of it a little confusing).

tradetime

Nukumai wrote: »

Apologies if I misunderstood your intent (though I did find some of it a little confusing).

No worries, when I get time I will read the rest properly and reply, I can see just at a glance some of your critique regarding toxic assets is probably correct, perhaps my own tabloid journo exaggeration creeping in

Reaper

It strikes me as a complete wimp out by the president to leave it to a referendum to decide the issue. He is paid to make tough decisions but has ducked them.

If we had a referendum over whether our reckless banks should have been bailed out the majority probably would have said no and our economy would have promptly gone into meltdown. Now the Icelandic government has an uphill struggle to explain to the voters that there are huge implications for their economy if they vote no - it is not just a matter of whether the Netherlands and UK deserve to be repaid.

Their leaders failed them during the bank crisis and they are failing them again now.

StevieJ

Reaper wrote: »

Their leaders failed them during the bank crisis and they are failing them again now.

Or their constitution failed them, leaving it to one man to effectively veto.

noh

tradetime wrote: »

That's interesting, do you have a link to the full article on that, as it is somewhat different to what the popular vultures er I mean media seemed to be pumping yesterday.

Here is the original survey

http://eng.capacent.is/lisalib/getfile.aspx?itemid=101ecbb6-126a-4997-a6b7-ed78429036a4


It is a poll taken from 1200 respondents.
I think the margin of error may be quite wide.

vaporate

It would be disgusting if Iceland refused payment. I would totally support any Uk enforcement of such payment.

Only a complete moron would let Iceland off the hook, more so if it was your money tied in in their savings account.

Thankfully mine isn't.

Nukumai

Reaper wrote: »

It strikes me as a complete wimp out by the president to leave it to a referendum to decide the issue. He is paid to make tough decisions but has ducked them..

Welcome to the, shall we say, "interesting" topic of Icelandic politics - a fascinating diversion if one chooses to do a little research.

Their leaders failed them during the bank crisis and they are failing them again now.

True. But the Icelandic public might also fail itself. One consequence of not voting 'yes' could be non-entry to the EU, which could be devastating.

Having said this, there is a great deal of bad feeling for the UK government over the application of the Anti-Terrorism legislation. This is possibly one of the reasons that many are threatening to vote 'no'.

noh

there is a great deal of bad feeling for the UK government over the application of the Anti-Terrorism legislation

Which was not "anti terrorism legislation" as has been highlighted several times.

The legislation used was part 2 of the Anti-terrorism, Crime and Security Act 2001 which as you can see covers more than terrorist acts.

The treasury believed that action to the detriment of the Nations economy was about to be taken so issued this Statutory Instrument
http://www.opsi.gov.uk/si/si2008/uksi_20082668_en_1

tradetime

Nukumai wrote: »

tradetime - Wrong...by your definition, most businesses that fail could qualify as Ponzi schemes.

Already answered

Nukumai wrote: »

In fact, a Ponzi scheme is merely an operation that fraudulently takes money from Peter to pay Paul. But, in order to maintain the illusion, a Ponzi scheme must constantly attract fresh incoming funds; in order to do this they are forced to offer higher and higher (artificial) investment returns. It is at this stage (assuming the initiator hasn't already run off with the money) that they tend to attract attention and get found out.

And, of course, not all Ponzi scams start out with the intention of being a fraud (including Charles Ponzi's own business ventures).

I agree completely, a true Ponzi Scheme would imo be defined as an activity where the operator knows beyond reasonable doubt that he cannot meet his financial obligations to those people he is taking money from, but he continues to take money and use it to perpetuate fraud.

I have not studied the original scam by Charles Ponzi, however, there were, accurate or not, rumors that the most recent infamous scam by Madoff started as a legitimate investment scheme, however very quickly it was clear that he did not have the knowledge or expertise to achieve his objectives.

If we assume for a minute that this is true, then he would not have started out as a Ponzi scheme, but since his standing in the financial community attracted more money, perhaps combined with pride (not being able to admit he couldn't cut it) along with the fear of ruin, he saw the opportunity to defraud, and thus it became a Ponzi scheme. Though speculation on rumor, it illustrates the point that an original attempt does not need to be fraud, but at some point that decision is taken.
Most businesses that fail, simply do that, there is no fraud, similarly the Icelandic bank was rapidly overtaken by the sequence of events that unfolded. Prior to the credit crisis, I believe it was a very successful institution. Imo there was no Ponzi scheme there, just a failed bank.

Nukumai wrote: »

Legitimate pension schemes are not, of course, a fraud.

In general no, but this goes back to my previous post, that if you view the Icelandic Bank as a Ponzi scheme, because of the model, ie it seeks to generate investment returns to meet its payment obligations, however, investment income is not always smooth, straight up, therefore there may be times when it is paying money out from money it has taken in rather than investment gains, in time however this should sort itself out and they are back in the green and paying from gains rather than capital, there is no expectation that they cannot meet their obligations, and therefore no fraud.

However, one can't help being struck by the similarity, where say a pension scheme, such as the UK state pension scheme does not exactly have glowing future prospects. One might also proffer the NHS as another Ponzi like scheme. Of course, there is no intention here, and we assume the people in charge and in the know, truly believe it will all work out. However if either the NHS or the State Pension system were to collapse and we were to find out at some point in the future, that the people in charge and in the know knew that this was inevitable, I'd suggest it would then qualify as a giant Ponzi Scheme. But that is by the by and off topic

Nukumai wrote: »

Wrong. The Icelandic banks were not materially involved in toxic derivatives or sub-prime mortgage assets, unlike many European and Nth American institutions. Their problem (in simple terms) was their relative size, compared to the Icelandic economy. Regarding the higher interest rates they were offering...when market liquidity dried up they were forced to offer higher interest-rates to attract fresh deposits, in order to fund themselves.

I would also have to agree with you here, as far as I understand it the collapse of the Icelandic banking system was due to funding issues rather than losses on toxic debt, afaik. So that was a bit of a generalization, more of a dig at some of our own banksters, though I'd say greed at growing their businesses too far too fast beyond a safe level played a fair part. If their obligations were so far in excess of their funding, then they were indeed over leveraged.

Nukumai wrote: »

"Dodgy financial instruments" had almost nothing to do with it (not directly).

Agreed and responded.

Nukumai wrote: »

Whilst the situation is obviously complex, Icelanders were happy to maintain a level of per capita personal debt much greater than that of the UK or the US, and to rely on domestic inflation to provide their investment returns. Moreover, many individual homeowners had mortgages denominated in EUR or JPY; a potential disaster waiting to happen when you consider how precarious a small currency such as the krona is to collapse under crisis.

Remember, too, that Iceland was running a significant GDP deficit for an economy of its nature, being a reflection of the population's desire to import consumer goods on credit.

They were more than happy to reap the benefits during the good times, but are now not wanting to meet their moral and legal obligations. Remember, people were skeptical about depositing funds with the Icelandic banks...but there were many reasons to alleviate these concerns...not least being the Icelandic Govt stating that it would rescue any local bank that found itself in trouble.

True, but then to an extent that is the same all over the developed world.

Nukumai wrote: »

And don't misunderstand me...I was, and remain, horrified that the bullying UK govt applied Anti-Terrorism legislation in order to freeze Icelandic assets, and I have a real sympathy with Icelanders due to the situation they find themselves in.

I also sympathize with the Icelandic people very much so, and we shouldn't consider ourselves immune from their fate either. However I disagree with your horror, firstly the Icelandic government made it quite clear, literally in a statement, "that they were looking after their own" "it was every man for himself" Secondly the legal clauses of the "Anti-terrorist Bill" in question do not pertain solely to terrorism, but it makes better press to lead with that.

baby_boomer

I don't know about Iceland's culpability, but MSE allowed some pretty aggressive pro-Icelandic posters to knobble any negative thoughts about Icelandic savings.

You stuck your head above the parapet on these boards at your peril.