Iceland let their banks fail

Originally posted by kmax87
If the banks were allowed to fail, who would have been left in the system to administer the increased flow of Fed money. As the banks started to fall who would they have brought down with them......and on and on. A lot was said at the time to publicly justify the bailout, but just because credit did not flow on from the bailed out banks is less avarice on the ...[text shortened]... ng to maintain its composure. I'm not sure how failure at every turn would not have snowballed.

You are talking a lot of nonsense. Iceland let their banks fail and they are doing better than the USA.

Explain why they could do it but not the USA.

Originally posted by Metal Brain
You are talking a lot of nonsense. Iceland let their banks fail and they are doing better than the USA.

Explain why they could do it but not the USA.

For one thing because they have a population of 300,000 and it only cost the rest of the world £4 billion. There was no way the Icelanders could pay that, so one of the European courts let them off. Had the court not let them off then they'd be stuffed. The court cited a rule change, the point being they wanted to give the Icelanders a way out without setting a problematic precedent. Should the U.K. default on her debt of £1.2 trillion then the entire international financial system would be on it's knees. If the US did something like that then the world economy would flat-line. Iceland got away with it because they are small and because they screamed loudly enough, neither the US or Britain can do that because it affects everyone else so deeply.

Originally posted by DeepThought
For one thing because they have a population of 300,000 and it only cost the rest of the world £4 billion. There was no way the Icelanders could pay that, so one of the European courts let them off. Had the court not let them off then they'd be stuffed. The court cited a rule change, the point being they wanted to give the Icelanders a way out udly enough, neither the US or Britain can do that because it affects everyone else so deeply.

Bullcrap!

I explained my position quite clearly and all of you idiots keep ignoring the economic realities of it. Get a grip!

It doesn't matter what the size of the economy is if the method works. You are just another person with a normalcy bias that clouds your judgment because you only listen to what the establishment wants you to. You are incapable of independent thought.

Your username of deepthought is rather ironic as you can only parrot what others say and are not inclined to thinking for yourself. My advice to you is to think past what the corporate news media feeds you as that is all you rely on and that is a flawed way of thinking.

Let me know when you can think for yourself.

Originally posted by Metal Brain
You are talking a lot of nonsense. Iceland let their banks fail and they are doing better than the USA.

Explain why they could do it but not the USA.

Keep at it. The only way to get over an illness like the flu is to suffer the symptoms and let it run its course. There is no way out of intentional monetary inflation, but to suffer the symptoms, return to honest currency, and let the failures be punished for their rash and incompetent behaviour. The bailouts only guarantee that future failures will happen, and that they will ultimately be worse.

Originally posted by kmax87
If the banks were allowed to fail, who would have been left in the system to administer the increased flow of Fed money. As the banks started to fall who would they have brought down with them......and on and on. A lot was said at the time to publicly justify the bailout, but just because credit did not flow on from the bailed out banks is less avarice on the ...[text shortened]... ng to maintain its composure. I'm not sure how failure at every turn would not have snowballed.

IF the most insolvent banks had been sent to Bankruptcy Court and IF the Federal government had taken measures to apply direct stimulus to the economy as I have described, I do not think the results would have been any or much worse in the short term and the system would have been more stable in the long run. At this point the banks are in approximately the same position as were in 2008 except they are more concentrated and thus even more vulnerable. At the same time, they are spending tens of millions of dollars to block even minor reforms that would lessen the chance of a similar catastrophe.

Originally posted by Metal Brain
Could it have worked in the USA?

http://www.bloomberg.com/news/2012-02-20/icelandic-anger-brings-record-debt-relief-in-best-crisis-recovery-story.html

Did Americans let their banks screw them over needlessly?

I think bailing out the banks in 2008 and 2009, while not a perfect solution, was the lesser of 2 evils. Letting many of the big banks fail could have had even more disasterous effects on the economy than the crash of 2008 already did. I would have been more critical of this approach were it not for the fact most of the big banks have already paid back the bailout money.

Originally posted by bill718
I think bailing out the banks in 2008 and 2009, while not a perfect solution, was the lesser of 2 evils. Letting many of the big banks fail could have had even more disasterous effects on the economy than the crash of 2008 already did. I would have been more critical of this approach were it not for the fact most of the big banks have already paid back the bailout money.

What will prevent a repeat in the future?

Originally posted by normbenign
What will prevent a repeat in the future?

The solution to that question have been argued in the Senate, House, and Oval Office for the past 4 years, and will be into the future. All I can say on this is "beware of simple answers to complicated problems."

Originally posted by bill718
The solution to that question have been argued in the Senate, House, and Oval Office for the past 4 years, and will be into the future. All I can say on this is "beware of simple answers to complicated problems."

At present, there seems to be NO answer to that rather direct question, at least from the politicians. The large banks are again over-leveraging while doing everything they can to block reform of the banking system. WHEN the inevitable occurs AGAIN they will be back at the public trough with their rather large tin cups. Hopefully something useful will be done the next time rather than just tossing them money.

Originally posted by Metal Brain
Bullcrap!

I explained my position quite clearly and all of you idiots keep ignoring the economic realities of it. Get a grip!

It doesn't matter what the size of the economy is if the method works. You are just another person with a normalcy bias that clouds your judgment because you only listen to what the establishment wants you to. You are incap ...[text shortened]... u rely on and that is a flawed way of thinking.

Let me know when you can think for yourself.

I understand your position, however it is very weak. Simply letting all the banks fail means you have more pieces to pick up than you can pick up. If one of them is allowed to fail every now and again then that's a good thing "pour encourager les autres" but not all at once.

Do you really think size is unimportant? The U.S. has a population of 315 million people. There is no external bailout. Iceland did bail out it's banks by dumping the deficit on The UK and The Netherlands. The US simply can't do that. Iceland's loss didn't go away, it was absorbed by other countries. This is easy to do if the country is small and there's only three banks. It is a lot harder to do when it's the US which is over 1,000x bigger. The scale of an operation matters a lot in economics.

Originally posted by DeepThought
I understand your position, however it is very weak. Simply letting all the banks fail means you have more pieces to pick up than you can pick up. If one of them is allowed to fail every now and again then that's a good thing "pour encourager les autres" but not all at once.

Do you really think size is unimportant? The U.S. has a population of 315 ...[text shortened]... US which is over 1,000x bigger. The scale of an operation matters a lot in economics.

It's fanciful to suppose that ALL the banks in the US would have failed.

Originally posted by DeepThought
I understand your position, however it is very weak. Simply letting all the banks fail means you have more pieces to pick up than you can pick up. If one of them is allowed to fail every now and again then that's a good thing "pour encourager les autres" but not all at once.

Do you really think size is unimportant? The U.S. has a population of 315 ...[text shortened]... US which is over 1,000x bigger. The scale of an operation matters a lot in economics.

An article from the Center for Economic and Policy Research makes the following point (among others):

Suppose the TARP money had not started flowing and we saw the chain of bank collapses continue. The two remaining independent investment banks, Goldman Sachs and Morgan Stanley, would surely have been killed absent TARP and other special assistance from the Fed. It is all but certain that Citigroup and Bank of America would have gone belly up as well, along with many other large financial institutions.

Would this have led to financial Armageddon? Well, it surely would have created considerable disorder in the financial markets and led to a few million lawsuits, but the Fed and FDIC no doubt would have taken over these institutions to keep the system of payments operating. The Fed had a contingency plan to take over the money center banks in the 80s when they were threatened by large amounts of bad debt in Latin America. It is inconceivable that it did not have a similar plan in place following the collapse of Bears Stearns in March.

This means that "financial Armageddon" would have meant the demise of Goldman Sachs, Morgan Stanley and most of the other Wall Street titans, but probably would not have led to a qualitatively worse economic situation for the rest of us than what we actually saw. In fact, there would have been a great benefit from this financial Armageddon in that it would let the market wipe out the fast dealing high flying Wall Street gang in a single blow.

This would eliminate the culture of synthetic CDOs and naked credit default swaps that provide ever more sophisticated and expensive ways to gamble. It would also eliminate many of the huge multi-million dollar paychecks that the Wall Street boys take home every year (or week). In other words, this is not obviously a bad story.

http://www.cepr.net/index.php/blogs/beat-the-press/tarp-martyrs-the-post-mourns-politicians-who-lost-for-helping-the-banks


In essence, those banks who were managed incompetently would have been purged (though the high end individual players would have remained extraordinarily wealthy). This hardly seems like the disaster we were told it would be.

Originally posted by bill718
I think bailing out the banks in 2008 and 2009, while not a perfect solution, was the lesser of 2 evils. Letting many of the big banks fail could have had even more disasterous effects on the economy than the crash of 2008 already did. I would have been more critical of this approach were it not for the fact most of the big banks have already paid back the bailout money.

Your claim doesn't add up. Bailing out the banks didn't result in lending. That caused deflation just as much as would have happened if the banks were allowed to fail.

Deflation is what causes depressions.

If you can explain why it would have been worse go ahead and support your claim using economics. I don't think you can, but I'll give you that chance to prove me wrong.

Originally posted by DeepThought
I understand your position, however it is very weak. Simply letting all the banks fail means you have more pieces to pick up than you can pick up. If one of them is allowed to fail every now and again then that's a good thing "pour encourager les autres" but not all at once.

Do you really think size is unimportant? The U.S. has a population of 315 ...[text shortened]... US which is over 1,000x bigger. The scale of an operation matters a lot in economics.

I was not suggesting the USA dump it's debt on anybody. If that really mattered Obama would not be piling up more debt while the stock market keeps going up. Not that the stock market is not rigged to do that, but few people are alarmed at the rising debt right now. Even Paul Krugman is suggesting it is no big deal although I tend to disagree with him on that.

Deflation causes depressions. Deflation is caused by a contraction of the money supply, which is caused by a slowdown in lending. This is one of the downfalls of fractional reserve banking. Alexander Hamilton suggested the very first bank bailout as a method of preserving fractional reserve banking and we still have them.

These bailouts will continue as they have been if guys like you keep ignoring history. You are like a guy in a flood zone that keeps rebuilding when his house is destroyed. You just don't learn.

Originally posted by Metal Brain
I was not suggesting the USA dump it's debt on anybody. If that really mattered Obama would not be piling up more debt while the stock market keeps going up. Not that the stock market is not rigged to do that, but few people are alarmed at the rising debt right now. Even Paul Krugman is suggesting it is no big deal although I tend to disagree with him on ...[text shortened]... a guy in a flood zone that keeps rebuilding when his house is destroyed. You just don't learn.

The ending of fractional reserve banking would cause a depression that would make the 1930s seem tame.