Just read an article with Iceland’s president discussing the banking crisis and his handling of the crisis. Of the most insightful and profound things he has discussed in his interview, I really enjoyed the following:
As everybody knows now, we did not pump public money into the failed banks. We treated them like private companies that went bankrupt, and we let them fail. Some people say we did it because we didn’t have any other option, there is clearly something in that argument, but it does not change the fact that it turned out to be a wise move or whatever reason. Whereas in many other countries, the prevailing orthodoxy is you pump public money into banks and you make taxpayers responsible for the banks in the long run, and somehow treat the banks as if they are holier institutions in the economy than manufacturing companies, commercial companies, IT companies, or whatever. And I have never really understood the argument: why a private bank or financial fund is somehow holier for the well being and future of the economy than the industrial sector, the IT sector, the creative sector, or the manufacturing sector.
But there were other issues at stake as well. What the British and the Dutch were arguing was that somehow the European banking system was such that a private bank would operate anywhere in Europe, and if it succeeded, the bankers got extraordinary benefits, the shareholders got big profits. But if it failed, the bill would simply be sent to ordinary people back home: farmers and fishermen, nurses and teachers, young people and old. And that, I maintain, is a very unhealthy formula for the future of the European banking system. If you sent a signal to the bankers that you can be as irresponsible and daring as you want to be, and if you are lucky, you become very rich, but if you fail, other people will pay.
It is surprising that the country that prides itself on the capitalist nature of itself is the one that is not capitalist at all in its nature (talking about U.S over here!). And Iceland, which is more socialist than the U.S was able to take such step, such as letting the banks fail. Along with the failure, the government should also stand the people responsible for such gross negligence that caused the entire housing mess (i.e sellign MBS, CMOs as AAA when they should have been rated junk). One of the reasons that might be is the lobbying of these financial institutions, and the immense power such institutions have on the lawmakers.
Now it is your time to think.
Iceland’s President Explains Why The World Needs To Rethink Its Addiction To Finance (BI)