Iceland Stands Tall--Banks And Depositors Must Bear Risks, Not The Taxpayers

Good for them!

By ASSOCIATED PRESS

REYKJAVIK, Iceland -- Icelandic voters appeared Sunday to have rejected a government-approved deal to repay Britain and the Netherlands $5 billion for their citizens' deposits in the failed online bank Icesave.

Partial results of a national referendum suggested the "no" side had gained more than half the votes -- a reflection of enduring anger over the economic havoc wrought by Iceland's risk-taking bankers.

Full results were not due until later Sunday. With partial results in from all six of Iceland's constituencies, the no side had almost 57 percent of the votes and the yes camp just over 43 percent.

"This is of course a disappointing result," said Prime Minister Johanna Sigurdardottir.

'...a disappointing result...'--but for whom?

The day is long overdue when the idea of 'risk' should be reintroduced to bankers, depositors, and borrowers. There is always the possibility that things might go wrong, since Murphy and his law are alive and well.

There is also the idea of 'moral hazard'. Lay the risk off to third parties, and an individual is allowed to behave recklessly. (Sound familiar?)

Here's a more formal definition:

Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions.

In this case, British and Dutch savers had lost money when IceSave bank collapsed. Their own governments made them whole (because?), and attempted to stick the Icelandic taxpayer with the bill, threatening retaliation via the EU. Given the chaos created by the Euro, exclusion from that clown circus should be a blessing.

Next on the task list: Send the Prime Minister packing, along with the geniuses who put the country through the referendum in the first place. A few prosecutions of the bankers responsible might also prove invigorating for the health of the economy in general. It's good for everyone, top to bottom, to understand the concept of risk and the dangers of moral hazard.

Here's hoping the Irish take heart, and demand their bailout terms and EU participation be put to a vote.

OS likes fish. He'll be shopping for Icelandic cod this week...