Categorical Aperitif

Dean Baker goes after an NYT story on the Icelandic populace's hostility to a deal requiring them to pay off (to the tune of $65,000 per household) foreign debts incurred by freewheeling financial speculators during a very un-Scandinavian bout of Randian deregulitis:

The issue here is whether private banks can effectively create enormous obligations (the money at stake would be equivalent to $6 trillion in the United States) for taxpayers. There was obviously an enormous regulatory failure on the part of the Icelandic bank regulators. International agencies like the IMF also played a role in failing to call attention to what were obviously very speculative investments. (Frederick Mishkin, a former Federal Reserve Board governor, did his part to promote the Iceland catastrophe, touting the great strength of its economy in a 2006 report. He does not appear to have faced any consequences as a result.)

It is also likely that some of the banks' actions involved fraudulent accounting practices if they concealed the extent of their true liabilities. The question then is whether the taxpayers or the depositors should bear the risk from fraudulent actions by banks. Arguments could be made in both directions, but this issue is never mentioned in the article.

It should also point out how the Iceland makes a mockery of anyone who claims to support leaving financial activities to the market. In almost all cases, actors in financial markets assume that governments will stand behind banks at the end of the day. Therefore when they say want the government to leave things to the market they are lying. They just want to be able to take risks with taxpayers money, without being fettered by regulations limiting the extent of these risks. In short, the finance boys want a free lunch, not a free market.

Amen. Iceland not only want to tell international banksters to sod off; it also wants to become an international free speech haven. I've never cared much for their cuisine, but dang if the Scandinavians don't do furniture and democracy better than the rest of us.