Defaulting banks - where will it stop?

[Peter Presland]

The Icelandic collapse saga is shaping up to be a defining event in this economic meltdown. Not least because the Icelanders have been rudely awakened to the primacy accorded to debt servicing obligations (however corruptly entered into by a tiny elite) over all other considerations (such as basic humanity and ability to repay) by the present collapsing global financial paradigms. It has received barely a whisper in the MSM but, over the past couple of weeks, they have basically said 'NO' loudly and clearly. They appear to be calling the EU, UK, Dutch et al bluff and the fallout is likely to be immense. Gordon Brown in particular has gone deathly quite on the whole issue because, in addition to the above, he knows it exposes him to further substantial charges of gross incompetence.

The Icelanders' demand is that debt servicing/repayments be set at a negotiable percentage of economic growth measured in their own currency and NOT at a level projected to amortise the debt over some arbitrary period and denominated in Dollars. Sounds reasonable enough on the face of it but in fact it is revolutionary. If creditors refuse to accept such a proposal and invoke sanctions, they will guarantee continued Icelandic emigration and a shrinking economy - IOW that they will NEVER be repaid. OTOH, if current and future creditors actually assist in the growth of the Icelandic economy rather than make loans which they know in advance will be ripped off by corrupt kleptocrats and cannot be repaid (shades of post WW2 practice throughout the 3rd world in fact and as detailed in John Perkins' 'Confessions of an Economic Hit Man'), then there will be some prospect of repayment.

This article by Michael Hudson is a brilliant analysis of what is going on and what is at stake. A 'Must Read' in the global banking crisis stakes IMHO:
Recovering from Neoliberal Disaster
Why Iceland and Latvia Won’t (and Can’t) Pay the EU for the Kleptocrats’ Ripoffs

These articles on Wikileaks give copious technical background info:

• Serious Fraud Office urges Kaupthing whisteblowers to step forward
  
• Fraud expert damns EU, IMF over Icelandic collapse
  
• Serious Fraud Office intensifies Icelandic banking inquiry after Kaupthing leak
  
• Kaupthing leak exposes loans
  

And the leaked document that casued the anti-EU earthquake in Iceland:

Financial collapse: Confidential exposure analysis of 205 companies each owing above EUR45M to Icelandic bank Kaupthing, 26 Sep 2008