‘While bailing out the banks, like Icelandic repayment, was and is a necessary move, I don’t see that it should be me or the average Icelander paying for it.’

Who should bail out the banks? By definition, it is the non-banks. If not the taxpayer, who did you have in mind?

‘If we don’t expect to downgrade our own living standards and public services in response to the banking crisis, and Left or Right, this seems to be the message underpinning British general election campaigns’

Come on. We all know this is a falsehood. Why choose the economic maths predicated on the halftruths of the election campaign as your starting point? We are going to have to downgrade those things: we do not have the collective money, however divvied up, the support the same level of spending as before. the Icelanders are relinquishing theirs, whether expected to by British Bloggers or not: this is just an argument about the form in which their lives may be disrupted. Higher taxes from 2016 onwards; frozen out of credit markets; a sulk and emigration; etc. Iceland, economically, is like a moon colony. It buys most things from abroad. There is no earthly way by some effort of will or defiance that they can keep 2006 living standards, no matter how many new economic paradigms are asserted in the common rooms of the Left.

‘Whether it is New York in the 1970s or Liverpool in the 1980s or any number of other instances where this conflict has emerged, our position should be to support democracy, regardless of the financial consequences.’

Bear in mind that many of the creditors are also voters. Suppose we were talking about, say, #300bn of the UK national debt. Some bright spark asserts that since Democracy Rules, and is such a fine thing, we should default on that debt. Hail, bright new morning of a new economic orthodoxy, boldly asserted! Or rather, not; there is nothing new in the world about people deciding to borrow money and then not repay it when things get tough. Read up on Philip II and Edward III – it is an old fashion. There would not be a gladsome rush towards a new credit ratings free world of nefish economics. Instead, widespread turmoil, vanishing finance, bankruptcy, broken enterprises, cratering living standards.

I suspect that enough of democracy would understand this enough to vote against it, in the case of Britain. A different calculus for Iceland, admittedly, which is why my post is equivocal in their case.

There are several parties in the chain of obligations. Dumb/Opportunistic UK saver lends his money to Icesave. IceSave buys asset (UK) too high. Iceland in general enjoys fine 6 years acting like it’s Mayfair. Then asset falls; IceSave bust; UK government wants entire financial system not b*ggered, so bails out. Is left with minus #2.2bn. Iceland had promised to obey certain rules to allow period of Mayfair fun.

Who is to be blamed? Top of list: icesave, and executives that creamed off money. But equity gone, bankers all over the world now. Then the savers. At the least they should give back all the interest they ever got, and take a hit. But that would have produced systemic crisis and uncertainty. So they have had a real result. Then the Icelandic people had several years of very high incomes. They should take SOME of the hurt. But, also, they have a brutal trade-off: walk away from agreement, reputation shattered, higher cost of K in future. If they want to play with K they have to weigh up the trade off which in my post I argue may be less, once the assets are sold.

Dave, your comparison with the UK acts like the only beneficiaries of the good times – and the bailouts – were the financial elite. This is not so. Without the monies used to bail out the financial system, all living standards would have endured a disorderly destruction. I happen to argue that the wealthy have benefited the most. As myself an owner of London Property, I can appreciate that my house is worth 20-30% more than it would be had it not been for QE and bailout. More taxes on wealth.

A working economic system is a massive public good, a teat we all suck from. A contribution from all is appropriate. If taxes are 5% higher for 10 years, that means #1k pa for median households, and #5k per household for rich ones. It does not sound mad.

Iceland: different. They ain’t going to be a hedge fund again.

Fingers. Dropping. Off.

“Iceland” is not one person. You may blame the Icelandic government for not being able to guarantee the requisite amount for personal accounts, but a) that’s a different government and b) it’s not the same thing as the individual people of Iceland. So when you say Iceland, which Icelanders, as it is people who will have to work to repay the money, are you referring to?

I’m differentiating between your average Icelander, and the people responsible. If you think that this is taking a jab at right-wingers, well that’s true enough, but that’s not mutually exclusive from logic or reason. It’s perfectly logical, as if we consistently work within a right-wing narrative, e.g. of conflating a nation-state with all its people, then we end up with right-wing policies such as end up hurting our own people.

You may not agree, that’s fine. You’re on the other side and we can politely agree to diagree via blog, but to do that you need actually to acknowledge what the argument is about.

Iceland attempted to break the law straight away with lack of assurance for giving the money it owed…money that is harvested through the businesses that run in it’s own country.

After a clear message of what that would mean in the eyes of the international community they changed their mind and needed $5bn to bail them out.

They need to pay that money back, and what is being asked for is a deal where it is paid back with 5.5% interest, the first 7 years interest only, from 2017 a full 8 years after the initial loan and plenty of time to economically stabilise. The repayments are also capped at 6% of Icelandic GDP for a level of fairness.

You can crow until the cows go home that it is somehow moral for this country to steal about £2.2bn of UK money, and democratic for them to be the ones that decide on whether it is UK tax payers or themselves that fall out of pocket.

But of course, for all this talk of “investors” knowing the risks, the government of Iceland should have too. They knew they had to guarantee 20k Eur yet they didn’t keep the funds or agreements to do so. From day one of Icesave opening it’s doors Iceland knew, and it’s people are a part of that, that if their bank went down they’d have to play a part in things.

But clearly this isn’t about logic or reason, it’s about another chance for some left wingers to take some jabs at right wingers, right?

Dave, v good indeed. Crystallised in one para what it’d have taken me about 4,000 to (and I may well still take when I write something on how an ‘endgame’ process might be played out as conflict between ‘sovereign debt’ and the will/power of the commons.

Giles at Free Thinking Economist is having similar thoughts. He will as likely as not take a different view based on assumptions about the value of liberal democracy/property rights than than what the likes of you conceive as democracy, and tie it to an understanding of morality that you don’t hold to. Nevertheless, it’s interesting to see an intelligent person writing from a liberal perspective juggling the same variables as you do here.

I’ll simply copy this comment over to his post and see what turns up. If you win the debate, he will be required to change the name of his blog to Free-but-only-until-recently-within-a-liberal-paradigm-of-capital-dominance Thinking Economist. That’s only fair.