The desperation of financial war

We’ve all heard the jokes – six months and an ‘r’, Reykjavik-on-the-Thames etc.

Michael Hudson, a balance of payment economist ex-off Chase Manhattan, Arthur Anderson and the UN, discusses Iceland’s desperate predicament – huge foreign debts their banks can’t repay and creditors determined to leech all they can from the country and it’s people. He regards their situation as nothing short of financial war, it’s the stuff of nightmares, and one wonders, with the banking guarantee and NAMA – are we next?

Hat tip Green Bear @ thepropertypin
Iceland is under attack – not militarily¬ but financially. It owes more than it can pay. This threatens debtors with forfeiture of what remains of their homes and other assets. The government is being told to sell off the nation’s public domain, its natural resources and public enterprises to pay the financial gambling debts run up irresponsibly by a new banking class. This class is seeking to increase its wealth and power despite the fact that its debt-leveraging strategy already has plunged the economy into bankruptcy. On top of this, creditors are seeking to enact permanent taxes and sell off public assets to pay for bailouts to themselves.

Being defeated by debt is as deadly as outright military warfare. Faced with loss of their property and means of self-support, many citizens will get sick, lead lives of increasing desperation and die early if they do not repudiate most of the fraudulently offered loans of the past five years. And defending its civil society will not be as easy as it is in a war where the citizenry stands together in coping with a visible aggressor. Iceland is confronted by more powerful nations, headed by the United States and Britain. They are unleashing their propagandists and mobilizing the IMF and World Bank to demand that Iceland not defend itself by wiping out its bad debts. Yet these creditor nations so far have taken no responsibility for the current credit mess. And indeed, the United States and Britain are net debtors on balance. But when it comes to their stance vis-à-vis Iceland, they are demanding that it impoverish its citizens by paying debts in ways that these nations themselves would never follow. They know that it lacks the money to pay, but they are quite willing to take payment in the form of foreclosure on the nation’s natural resources, land and housing, and a mortgage on the next few centuries of its future.

Read the whole article here

  • kensei

    If Iceland went to their debtors “So sue us”, what would the consequences be?

  • John East Belfast


    My view would be that foreign creditors and governments would be subject to the same laws as everyone else – ie all they would have the right to do is enforce any claim they had over pledged assets.

    They cant send in armies any more than companies here can send round the heavies.

    Therefore Iceland walk away and start over (albeit without credit one assumes) and those who loaned the money etc have to take it on the chin

  • Barnshee

    “Therefore Iceland walk away and start over (albeit without credit one assumes) and those who loaned the money etc have to take it on the chin ”

    Well not quite – those who loaned now own the assets -well sell them for what you can get and “take it on the chin” I hear you say.

    This is precisely the situation governments will NOT (so far) let occur.

    The banks are owned billions– secured on land and property now “worth” less than they loaned well– then sell for what you an get and take it on the chin?
    Hardly–the only ones taking it on the chion will be the tax payer who bails this mess out -over a generation.

  • Comrade Stalin

    The way this normally works is that the lender takes the hit and loses out, and the borrower suffers from a substantially impaired credit rating.

    Bleeding a country to death over debts and reparations may not be the best way to proceed, given what happened when we did that to Germany.

  • Mack

    It’s a very long article, but contains a lot of interesting info including the background to the first performance of Handel’s messiah in Dublin.

    The fight to end debt bondage and debtors prisons took many centuries to achieve its humanitarian objective. Handel’s Messiah is a staple of the Christmas and Easter season celebrating the life and teachings of Jesus Christ. What has been forgotten is the context in which Handel arranged the first performance of this oratorio in Dublin, on April 13, 1742. It was a charity concert for the benefit “of the Prisoners in several Gaols, and for the Support of Mercer’s Hospital in Stephen Street, and of the Charitable Infirmary on the Inn’s Quay.” Enough money was raised to free a hundred and forty two prisoners. The oratorio’s text accordingly contained references to “breaking bonds asunder” and “casting away yokes,” recalling the early Christian belief that the Messiah’s reign would bring liberty (Hebrew deror or debt cancellation) and release (Greek aphesis) from debt bondage. The “redeemer” was literally the redeemer from debt.

  • Mack

    The original Lord’s Prayer in Latin

    Pater noster, quī es in caelis
    Sānctificētur nōmen tuum;
    Adveniat regnum tuum.
    Fīat voluntās tua
    Sīcut in caelō et in terrā
    Pānem nostrum cotīdiānum dā nōbīs hodiē.
    Et dīmittē nōbīs dēbita nostra,
    Sīcut et nōs dīmittimus dēbitōribus nostrīs.
    Et nē nōs indūcās in tentātiōnem;
    Sed līberā nōs ā malō.

    English translation

    Our Father, who art in heaven,
    May your name be treated as holy,
    May your kingdom come,
    May your will be done,
    On earth as in heaven.
    Give us today our daily bread.
    And forgive (literally “drop”) our debts
    As we forgive (again, literally “drop”) our debtors.

    And lead us not into temptation
    But free us from evil.

  • Greenflag

    updated 2009

    Our Father, who dwells in Wall St
    Blessed be thy investments
    May your quarterly results ever increase
    May your profits exceed expectations
    In America as well as globally
    Give the American middle class a mess of pottage .
    And don’t forgive them a cent of debt
    But screw them mercilessly until they have nothing left for their retirement .
    And deliver us from Trade Unions
    For thine is the Kingdom of Madoff and Enron and Haliburton and Stanford and Frieling and all of the Saints in Congress and the Senate forever and ever .


  • Greenflag

    Comrade stalin,

    ‘Bleeding a country to death over debts and reparations may not be the best way to proceed, given what happened when we did that to Germany.’

    Iceland is not Germany. So they can bleed to death over debt and nobody will give a bugger not even their fellow Scandinavians if truth be told. And the same would go for Ireland except we happen to be in the Eurozone and it would not be kosher (yet) to do the dirty on one of their own .

    The West needs to reintroduce laws against usury and bring back the ancient punishment of flaying alive for bankers and insurance company executives and all those in the financial services and political sectors who have selfishly abused the people’s trust and been found guilty of capital crimes. They should start with Madoff and work their way through Wall St and the City.

  • Wilde Rover

    “On this view of the import of the term republic, instead of saying, as has been said, “that it may mean anything or nothing,” we may say with truth and meaning, that governments are more or less republican as they have more or less of the element of popular election and control in their composition; and believing, as I do, that the mass of the citizens is the safest depository of their own rights, and especially, that the evils flowing from the duperies of the people, are less injurious than those from the egoism of their agents, I am a friend to that composition of government which has in it the most of this ingredient. And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

    Thomas Jefferson to John Taylor, May 28, 1816

  • 0b101010

    (He worked for Arthur Andersen yet can’t get the name right?)

    If Iceland owes more than it can pay, it isn’t under attack — it overreached, failed and is crying in the hopes that it will get away with theft because it has little to offer in terms of producing its way out of the mess.

    If Iceland bleeds to death over debt, it’s because they were stabbing themselves all along hoping gold would pour out.

  • Mack

    0b101010 – Iceland doesn’t owe more that it can pay, and it didn’t overreach. Banks, which happened to be based there, and which were independent corporate entities at the time, borrowed more than they could repay and overreached. Now the whole country’s future is being mortgaged to repay those loans.

    This is deeply immoral. Both the creditors and the debtors (the banks), took huge risks – it is they and not Icelandic citizens that should take the hit.

  • 0b101010

    If Iceland as an entity doesn’t owe more than it can pay then it should be financially sound, can allow these banks to fail and all this huffing and puffing is for nothing. That’s simply not the case. Iceland’s economy was inflated on dreams, rainbows and unicorn tears, and it has crashed around them as it eventually had to.

  • Mack

    0b101010 –

    The banks were nationalised, thus the government voluntarily took on the liabilities. I’m pretty sure they could still tell foreign creditors to get stuffed, but of course the foreign creditors want to prevent this, and they are aided and abetted by some Icelanders who wish to salvage something for themselves out of the situation. Do you seriously believe this is not happening?

    Compare it to the situation in Ireland, were the Irish government voluntarily undertook to guarantee the liabilities of Irish banks. Thus, in a penstroke, transferring the liabilities of independent corporate entities unto the taxpayer. The correct, capitalist course of action would have been to let the banks go under if they were bankrupt (it is possible the government believed the banks were viable trading entities) rather than forcing the taxpayer to bail them out / take responsibility for their deliquency. The counter argument would be that the banks were of systemic importance to the Irish economy. Which merely highlights a systemic fault. Question is – which cost is greater? Long term debt-servdom, or a seriously sharp shock to the system?

    This kind of debt transfer is immoral, it’s not for nothing we call the kind of pressure it creates a Moral Hazard.

  • kensei


    Reading Krugman’s “The Return of Depression Economics” at the moment, he points out that it is market perception has in all this. Iceland had a run on its currency and a lot of foreign assets, at least in the banks. The choice is either to take devalue the currency, incurring a huge cost in the size of the debts, or to shore it up with interest rates so high they make things much worse, and trigger a second round effect. The IMF might also impose these sorts of things as loan conditions, but the large companies who made the loans would never accept such conditions. Things suddenly become about what the market thinks the best course of action, rather than what is, to try and stave off a second round attack.

    I am coming to the opinion that rather than the Euro limiting Ireland’s options to devalue, it is probably saving its bacon from a serious speculative attack.

  • Mack

    That was my interpretation of Ireland re the Euro after reading that book too (& the collapse of the Icelandic Krona). Krugman’s take on the IMF is an interesting contrast to Naomi Klein’s (which Michael Hudson seems to parrot slightly, oddly for someone who talks of concern for genuine free markets, or perhaps not..)

  • Greenflag

    wilde rover ,

    Thanks for the reminder from Thomas Jefferson 😉 Those founding fathers of the American Republic understood human nature . Their latter day decendants seem to have forgotten some of the basics 😉