Iceland Wins

I don't understand why other countries don't compare what has happened to Iceland, and compared it to what is going on with Greece, Ireland, Portugal, etc., and realizing that telling the banks to go Cheney themselves is the best policy. Fitch's has just upgraded Iceland's credit rating from BB+ to BBB-, which means that they are now investment grade.

What is of note here is that the Icelanders made the decision to favor their own people over the banks:

Icelanders who pelted parliament with rocks in 2009 demanding their leaders and bankers answer for the country’s economic and financial collapse are reaping the benefits of their anger.

Since the end of 2008, the island’s banks have forgiven loans equivalent to 13 percent of gross domestic product, easing the debt burdens of more than a quarter of the population, according to a report published this month by the Icelandic Financial Services Association.

“You could safely say that Iceland holds the world record in household debt relief,” said Lars Christensen, chief emerging markets economist at Danske Bank A/S in Copenhagen. “Iceland followed the textbook example of what is required in a crisis. Any economist would agree with that.”

The island’s steps to resurrect itself since 2008, when its banks defaulted on $85 billion, are proving effective. Iceland’s economy will this year outgrow the euro area and the developed world on average, the Organization for Economic Cooperation and Development estimates. It costs about the same to insure against an Icelandic default as it does to guard against a credit event in Belgium. Most polls now show Icelanders don’t want to join the European Union, where the debt crisis is in its third year.

What? You mean the people of Iceland don't want to become part of an institution that increasingly is an instrument of Germany's incompetent hegemony? Hoocoodanode?

What they also did:

The island’s households were helped by an agreement between the government and the banks, which are still partly controlled by the state, to forgive debt exceeding 110 percent of home values. On top of that, a Supreme Court ruling in June 2010 found loans indexed to foreign currencies were illegal, meaning households no longer need to cover krona losses.

Note that both of these actions are considered to be cardinal sins under the international financial consensus, which states that creditors must always be repaid under the most favorable terms.

The fact that, "Iceland’s approach to dealing with the meltdown has put the needs of its population ahead of the markets at every turn," is an anathema to the large financial institutions, as is the implementation of capital controls in a crisis.  (And, BTW, they are prosecuting senior bank executives as well)

They argue that these sorts of policies put a damper on international credit and finance.

They may be right, but it increasingly appears that the capital flows that they are describing do more harm than good for everything but the bankster's bonus checks.

Keynes was right about this, and Wall Street and The City should thank their lucky stars that Iceland is small enough (population 318,452) to be ignored.

If other countries followed their lead, not only would the "Masters of the Universe" be out of job, they would be under criminal indictment.

H/t Credit Write Downs.