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Here is an article about the banking crisis in Iceland and, in many ways, it seems very similar to the situation in the United States. The banks were taking huge risks and when those risks didn't pay off they relied on Britain, the Netherlands and the IMF for help.
Saturday, April 17, 2010
Iceland's Financial Crisis
This week the IMF approved an additional $160 million bailout to help Iceland out of their financial crisis, increasing the cost of the country's bailout to $2.1 billion. The country's financial crisis has stalled its application to join the European Union. Britain and the Netherlands have already spent over 3 billion euros to bail out stakeholders after Icelandic bank Landsbanki collapsed in 2008.
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It seems that the bank's structures in these countries is not sound. I think we are starting to see which countries really have been responsible and which are not taking the necessary precautions and taking these huge risks. Portugal and Spain both had their problems but pulled themselves out of the hole. We will see if all this aid will help Iceland and Greece survive or put off default for sometime...
ReplyDeleteI believe international competition is actually to blame for causing a problem in this case. No bank was immune from the pressure to increase profits and keep up with those banks who were making the biggest profits. In order to do that they had to take on a larger and larger amount of risk. It was ok for a while eventually it all blew up. Had there been rules to prevent the behavior in the first place. If anything I think this crisis, in Iceland, Greece, and everywhere else, must REALLY call into question the economic philosophies of efficient unregulated markets.
ReplyDeleteThis part of the article really struck me:
ReplyDelete"much of Iceland's apparent wealth in recent years had been an intricately constructed mirage, a web of cross-holdings and compromised lending decisions. The regulatory smokescreen thrown up by the three banks and their major owners masked the fact that "weak equity" accounted for 70% of the banks' reported core capital and should be discounted"
It just seems like we're completely surrounded by lies these days. No one wants to tell the truth on how they're really doing. If everyone's operating on lies, the system was obviously bound to fail.
A lot of these reports of failing banks and other financial collapses were because of greed, fraud, and denial. These institutions realized if they cooked the books a little bit and deceive people they would receive greater profits faster and they started to believe that this wasn't wrong. They also thought that their profits would never end and they will keep growing. But they were all wrong and if institutions do not stop this they are bound to repeat their same mistakes.
ReplyDeleteIf these banks spent as much time trying to run a legitimate business as they did cooking the books to create a perception of profitability, they would be extremely successful. It's really frustrating to keep hearing about banks and businesses that ideals revolve around fraud and greed.
ReplyDelete