Iceland Population Votes Not To Pay Back UK and Netherlands - please explain why the population voted as they did

[Earlybird]

I can't fathom their point of view, and feel cranky about it. Isn't it fairly straightforward - the money was loaned, and now it must be paid back?

Why did it go to a public vote, and why did the population vote 'no'?

Do the people of Iceland have a valid point, or are they ungrateful folks we shouldn't rush to help again?

I'm sure it is much more complicated than that.......but how in the world can they say NO?

News story this morning:

'Icelanders have voted overwhelmingly against paying back Britain and the Netherlands for their £3.4bn bailout of Icesave customers after the bank collapsed in 2008. Iceland's government says it will continue to negotiate to pay back the money even though 93 per cent voted 'no' in a referendum.'

Perhaps a naive question - why was the bank not allowed to fail - as Lehman did? (And yes, I am aware that Lehman was not a bank.) Or why not simply pay each depositor up to the insured amount, and then count the remainder as a loss?

Surely the losses would not be Northern Rock or RBS sized??

What penalty - if any - have the bankers paid?

I believe that the problem was caused by the UK government refunding over and above the limits guaranteed by the Icelandic banks to Local Authorities and individuals who didn't do their homework and look at what those limits were.

Brown then used anti terror legislation to freeze the assets of the banks and to label the Icelandic people terrorists. The Icelanders I know are pissed off with Brown and the UK and rightly so.

The Icelandic people should not be made to pay because some people wanted a high rate of interest over security their money. They also should not be made to pay for the British government's choice to reimburse savers over and above the guarantee limits.

As ABetaDad says we need to watch our step. The last thing we need is Russian influence spreading there, especially when you consider how strategically important that part of the ocean is.

Furthermore, if Brown can promise £6 billion at Copenhagen, why is he worrying about £3.5 billion from Iceland - we evidently have the money!!!

Good point on the £6 billion promised by Brown.

On the strategic issue, I think the UK should accept a lease on a harbour and military airbase in return for a write off of part of the debt.

That would give us an important strategc base and cement an alliance. It would also allow us to control the entire arctic region. I sometimes marvel at our completely cack handed approach to foreign relations.

They're damned if they do and damned if they don't. If the Icelandic govt doesn't schedule repayment, their credit rating (which presumably has already been hit) goes right down the pan and no-one will ever lend them money.

Earlybird - covering only the amount agreed on the compensation schemes would have still required a massive loan. As mentioned earlier, the UK FSCS only keeps £4B on tap to cover a bank bust. Iceland probably had even less. Clearly this is not sufficient in the case of a major blowout.

And before we judge Icelanders for not taking reponsibility for their debts, keep in mind that Iceland's banking sector grew to 10x GDP. Here in the UK bank assets are 5x GDP, far more than most other countries. (only about 0.50x in the U.S.)

We would also need a bailout if our banking sector collapsed.

Iceland's credit rating is already in tatters, at junk grade or just above, depending on the ratings agency.

IceSave was allowed to fail.

The British depositors than turned to the British govt. to repay them the money they had lost when the bank went tits up.

British govt. repaid the British depositors at a rate that exceed the amount guaranteed by the Icelandic bank.

British govt. then decided to bully the Icelandic govt. (and hence it's tax payers) into financing the repayment of British depositors.

Alistair Darling has said that we will be expecting a country with the population of Wolverhampton to repay 2.3billion pounds.

So if BP went belly up would we want our taxes raised so that the UK government would then repay all of the money to foreigners who had purchased BP stock?

I don't think it is feasible to expect governments to always bail out their private companies.

Frankly the UK Govt were in panic mode bailng out all and sundry.

We should have let all the banks fail and just pay out the small depositors to the limit of the deposit protection scheme.

As Strix rightly points out we would not bailout the shareholders and bondholders of any other company so why bailout Northern Rock, RBS, HBOS, IceSave, etc.

That was a massive mistake and it is totally out of order to now try and bully Icelandic taxpayers into repaying a debt that our Govt willingly accepted on their behalf.

The Icelanders are saying 'no to taxation without representation'. Too right.

I do think that Brown was completely wrong to recompense people who had deposits in Icelandic banks. The only reason they were doing this was because of greed as it had a slightly higher interest rate. If something looks too good to be true then it usually is.

Not necessarily greed IMO. Perhaps naive.

Speaking as someone who put money in icesave on the basis of sound FSCS rating, and it being top-runner on various money expert breakdowns of best savings banks.

Wasn't that much more interest than, say, Birmingham Midshires, or First Save, which were offering about 4.75% on 1 year fixed bonds at the same time.

Only a slightly higher interest rate - so not enough to be glaringly obvious as being suspiciously good deal. Tied in with sound ratings.

the government has not bailed out any shareholders in any bank - case in point, Northern Rock. They got nothing. RBS and Lloyds shareholders have also taken massive losses.

The government only bailed out depositors who could reasonably expect their money back under stated compensation schemes.

The reason banks received a bailout while other companies might be expected to fail is solely to do with the importance of the financial system in the everyday lives of all and sundry. If people can't get a pay cheque, buy groceries, etc. because money is not flowing through the system, the entire economy would quickly collapse.

So you don't think the stability of other industries (such as oil) has the same impact on everyday lives in all of sundry? And here I thought the inflated price of oil had been partly responsible for this banking crisis.

I don't really see a huge difference between putting my money in a savings account and buying some stock. It seems to me they are both intended to save/make me some money.

I don't really think the banking sector is the sole industry of importance to our way of life in the 21st century.

I understand why our Government civered the payments, many refundees were charities / councils etc weren't they? And as such needed to be covered one way or another, depending on which charity fdor example it can cost the Gocvernment a lot more to match resources and some aren't negotiable.

And if people ahve life savings then benefits made instead due to lost income can swallow resources sharpish

But I can understand why teh people of Iceland are voting this way also

WRT to other banks, a lot of people investinga ren't putting shedloads of savings- it's their food / home; a collapse of a bank wopul;d cause absolute devastation, homelessness, not just for fat cats but real average people who simply live off what they earn, maybe put a little by.

That doesn't mean otehr industries shouldn't be helped but it does mean that banks cannot be allowed to go to the wall simply becuase that may have happened.

I've watched my aprents lose their pension in another form of colpase, and it has cost the country thousands in what tehy will be forced to claim in HB, otehr benefits etc- their pension was unsaveable due to what happened (well the laws should be changed but retrospective intelligence is free for all etc).... Governments understand cost / expense benefits

strix, there is a huge difference between depositing your pay into a current account and maybe setting aside a bit in savings to making speculative investments in company shares, which you could lose all of your capital on. if there was no confidence in deposit taking banks, we'd all be stuffing our mattresses with money.

I realy do think that the only thing that should have a Govt guaratee is National Savings and say up to £5000 in bank current accounts. The Deposit Protection Scheme and the implied Govt guarantee over the whole banking system is a huge distortion and effectively a subsidy to the banks that they make most of their profits from.

I am a believer in capitalism but it really is a massive scam how the banking system works. It just is not how capitalism should work.

If there was no Govt garatee banks would have to pay depositors a lot more money to attract savings and the Govt would correspondingly attract more savings so its cost of funding the National Debt would fall.

ABD, your analysis makes no sense. Banks take deposits to fund lending. If they had to pay enormous rates to attract deposits, borrowing costs would rise in turn.

All the current "subsidy" does, is help keep those overall levels down. The margin would likely remain constant in your scenario.

Having a reliable and secure place to put our money is crucial to economic stability. Otherwise there could be constant runs on banks.

If you are suggesting that the government should take the vast bulk of savings deposits to get cheaper funding to pay interest on its debt ... well, I don't know what to say. Do you really want the government to control who gets a mortgage, a business loan, etc.?

I just think that banking is not the only industry which is vital to life as we know it here on Earth. It seems to have some special bail out status. I'm not saying the crash shouldn't have been prevented. But, I do think we didn't much from the banks who were bailed out in return. Why are they allowed to not be accountable?

And, as for Icelanders, they didn't ask for Gordon Brown's our money. They didn't sign up to paying interet on it. So why should they be legally bound to the terms? I can understand their disgust. What if I went out and spent money on your behalf without your agreement and then turned around and said you owe me repayment plus interest because I did it for you.

I don't think Iceland should pay the money back because of the huge hardship it would put their population under. Their population it tiny (320,000). It would be the equivalent of asking Northumberland for the money back.

But the fact that they did not regulate their banks properly suggests the country is mismanaged, and as a consequence it will have an impact on their relationship with the EU and how they are treated with regard to finance. We should learn from that, because our banking sector is also big compared to out GDP and has been poorly regulated, and it would be a disaster if we ended up in a similar situation.

I am very disturbed by Bets Dad's suggestion that as they 'owe' us we should be able to put a military base in Iceland. Who are we? The United States? Our Imperialistic days should be long gone.

Why is it greedy to put your money in a bank that offers the highest interest rates, as some people on here are suggesting? So it it greedy to try to get the best mortgage rate, the best pension?

I didn't invest in IceSave but I was considering it. All the financial pages were recommending them and IIRC, they had a 3* "safety" rating

furrycat - it s not greedy to try and get the best interest rate.

However, coming back to my earlier point it is a complete distortion of the economy to allow people to put their money with the riskiest banks, get the highest rate of interest and then expect the Govt will repay their money if the bank fails.

I invest in small companies for a living. I routinely have 2 - 3 companies completely fail on me every year and I lose all my money. I know this is the risk. I make money from the companies I invest in that do not go bust but I never expect to be bailed out.

People have just come to expect to be protected if they put their money with a risky bank. That is wrong. If you deposit your money with a bank you are investing in that bank. People need to be told that and the consequences made clear. I think Govt should just say if you want a guarantee then put it in National Savings and if you want an extra rate of return then you take the risk and do not expect a bailout.

I invest my spare cash in national savings for this reason. The banks are still extremely risky and sitting on huge losses from loans on property that are yet to be written off.

Most small investors with a few thousand to put in a bank don't know how to assess risk by themselves, though. They rely on the ratings, which were obviously very wrong. A lot of very bright people with access to all the pertinent information got it completely wrong, and I think the reason was greed, which blinded them to the reality that it was all built on a very shaky foundation.

there is no risk in putting up to £50k in a bank covered by the FSCS. That is the only small print you need to read. Some banks operating in the UK are covered by their own country's scheme, such as ING, covered by the Dutch program for up to EUR100,000.

Deposits in banks and direct investments in companies bear little relation. A bank deposit does not give you a stake or any return from a bank other than the contracted interest rate, and the bank is obligated to return the deposit.

It is wrong to expect the government to bail out your dodgy stock investment, or your bad pension decisions, but it WILL compensate you for up to £50k if your FSCS-covered bank goes bust, it's not up for debate.

AFAIK, Icesave only guaranteed up to £20k. The govt bailed out the Icesave savers as many Local Authorities had invested there. CTAX would have had to rise otherwise.

MillyR; it's not about imperialism, it's about the UK/Greenland/Iceland gap, through which Russian submarines can sneak undetected. I'd prefer to know where they were, especially the ballistic missile ones!

for the record, the UK government did not compensate the councils that invested in Icelandic banks.

I think there were some loans to some hard-up councils, but only as a stopgap while they make their own efforts to get the money back.