Sunday, March 7, 2010

Three Cheers for the Voters in Iceland

Voters in Iceland resoundingly defeated the referendum to pay back the UK and Denmark for those countries bailout of Iceland bank debt. (The final vote was more than 85 percent against pay back)! What happened is that Brits and Danes bought bank debt from commercial banks domiciled in Iceland. It was a great bubble. Interest rates were sky high and the Brits and Danes couldn't buy enough of it. Then, when it soured (as all such things must), British and Danish investors demanded that their own governments make them whole...the governments of the UK and Denmark complied. They bailed out their own domestic investors in Icelandic bank debt.

Now the UK and Denmark want Iceland to pay up. Why? Why not just let the banks go bankrupt? Why the bailout? If I were a citizen of Iceland, I would not pay one red cent to the UK and to Denmark. Investors in those countries took a risk and...guess what?....the risk didn't pay off. Too bad...better luck next time. There is no reason for the citizens of Iceland to pay the UK or Denmark anything. There should have been no bailout.

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