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Comment by nikster | Hacker News Reader

Iceland did what any sovereign nation should do in that situation. They fixed it, and importantly they did it not by bailing out the bad guys but by taking everything from them!

Iceland also apparently knew that so-called investor confidence is a joke as far as countries are concerned. A few years on, who is even going to remember this? Of those who remember, who is going to think this might happen again - particularly since iron clad policy was put in place to prevent it from happening again.

Maybe Irish and Greek politicians are just too chicken to do the right thing. Or, and I think thats unfortunately more likely, they are fighting for vested interests of a few that pay them money rather than their country or their people. Iceland stands out in that the politicians acted in the interest of the people.

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There are more than 50 US cities bigger than the whole country of Iceland. I think the kinds of conclusions you can draw from Iceland's experience is a bit limited.

"But we are so much bigger" seems to be the standard excuse for the US not looking at what other countries are doing successfully and learning from them.

> "But we are so much bigger" seems to be the standard excuse for the US not looking at what other countries are doing successfully and learning from them.

Except we have evidence of what happens when a much larger fraction of the economy does what Iceland did. It was called the Great Depression. Small economies can borrow from abroad without destabilizing everything. Unless you are willing to directly take on the analogy of the Great Depression the 'Iceland for everyone!' argument is dead in the water.

I believe it was called the depression of 1920-21. I would certainly be up for it, as an alternative to following in the footsteps of Japan.

You assume scale invariance. There is abundant evidence that this is not the case in the field of economics.

If the argument that scale hurts (all small western countries are very rich, but big countries complain "we're too big because we can't do that and that), then the obvious solution would be to split up. For me it seems just too easy. I think the reasons are more related to the culture than to the size.

It's not that scale hurts; there are many benefits to scale. But obviously, it makes some things harder to deal with. Iceland has a population of 320,000 or so people and only one major city. Politics is a lot simpler with a population that small.

Indeed. Scale has benefits, one can see that for big companies, which have, despite bureaucracy and politics, quite some advantages - scale, wide skills, easier access to financing, global resource access etc.

How does splitting up a country seem easy? It didn't go so well for the US in the 1860's. Over 600,000 people died.

Right - the process may get ugly.

That's because some idiot decided not to let the worst states in the Union leave the rest of us alone.

I am not assuming anything. As a recent citizen of the US I am just observing that the US doesn't seem to be willing to look at other countries and learn from them because somehow the US is perceived as special. Examples where the US could learn a lot IMO are:

- health system

- broadband coverage (argument "the US has low population density". But why does the coverage in LA suck then? It should be a dream for a competitive market.

- murder rates

- incarceration rates

- poverty rates

Reflexively rejecting other countries' experiences is hurting this country big time.

But it's a pretty valid excuse. Luxembourg has the highest GDP per capita in the world, but you can certainly find places in the US with roughly the same population that would have a higher GDP per capita were they independent countries.

Why bother with Iceland when we can be following the economic policies of Beverly Hills?

What Iceland did was say to the bankers if you stuff up then it's your problem. Where're not here to bail you out.

In the US the bankers stuffed up, the tax payers bailed them out and the bankers got a nice big pay rise.

What this has taught the US bankers is they can safely put a gun to the head of the American people and their government will gladly hand over the money. No questions asked.

When the banks get bailed out its not of primary importance that bankers keep their jobs or "get a raise". The people being bailed out are the banks creditors. Iceland didn't tell the bankers stuff it (well they may have too--it's just less important), they told the lenders stuff it.

Iceland was in a position to hang out the creditors, because 1) they were all foreign; and 2) they didn't have an immediate, present need to tap the capital markets.

While not being in precisely the same situation as Iceland, Ireland probably could have done something similar. Greece cannot, because they continue to need to borrow immediately.

I think the (correct) point of the original article was that listening to and following the advice of your creditors is typically the best thing for them, but not for you.

Isn't Greece trying to run a primary budget surplus, i.e. before interest payments. If they managed that, they wouldn't need to tap capital markets after defaulting.

Do you actually know what you're talking about or are you just joining the large chorus of whiners that exist everywhere these days? People don't want to exchange knowledge and learn, it's one huge rant. I wish I could figure out how to stop this.

Anyway, I think salaries in many Wall Street jobs have been declining. And many of the banks that took TARP money paid it back with interest. Those that haven't, should be forced to at some point. Also, I think some of that money went to Detroit.

Yes.

For anyone interested in the size of the bail out, latest estimates put it at $US 29 trillion.

http://www.levyinstitute.org/publications/?docid=1462

To be clear, Fed action isn't spending. Look at page 32. It's all in the form of interest paying loans (and $10 trillion went to other central banks, not even private institutions). Much of it is to provide liquidity to banks already eligible to borrow through the discount window - already a source of unlimited loans from the Fed, at under 1% since 2008 (http://en.wikipedia.org/wiki/Discount_window). Much of the rest is to provide liquidity to other institutions that couldn't borrow directly, because the liquidity that's supposed to be indirectly ensured by the discount rate had dried up.

So yes, the Fed responded to the financial crisis by increasing liquidity. That it mostly occurred through ad-hoc programs and instruments doesn't change the fact that it's the basic function of the central bank. It's in no way paying for Wall Street salaries.

That's a completely ridiculous number, because you're adding up short term transactions. If you lend me, and I pay back immediately, $100 every day for a year, you did not lend me $36,500.

But this supposes there is some line, that, if crossed, means that you must make creditors whole, even if that means handing people who didn't make bad decisions (ie, the public) the bill.

If this line exists, then it would be interesting for people to suggest at what size the line lies at. Because I believe the line 'too big to fail' is a weak defense of vested interests making sure they aren't left holding the bag.

Anything can be scaled up or down. I don't see how other countries including the US couldn't take the Icelandic approach and do the same thing.

Think about what you just said. Complex systems generally don't scale linearly.

Of course everyone else could do the same thing. But would it have the same effect? I don't know.

Edit: That said, my intuition is that default + devaluation is actually the right way to go for many countries. But the effects will be much more complex if many countries do it, and if bigger countries do.

> Anything can be scaled up or down.

Said no engineer ever.

They also have a strong export economy, which makes it easier to push the reset button and start over.

Ireland and Greece are only quasi-sovereign as they adopted the Euro; their hands are tied unless they adopt their own currency.

The Irish Government retains the power to unilaterally renege on our bank debt. They lack the political balls to do the right thing- the phrase used by chicken shit Irish politicians and Eurocrats is "the bomb won't go off in Frankfurt, it'll go off in Dublin".

The European Commission, the European Central Bank, Angela Merkel, and amazingly, US Treasury Secretary Tim Geithner have all leaned on Ireland to keep this bullshit charade of paying back all this bank debt.

The IMF and the UK Chancellor are the only external parties who've said there's too much austerity in Ireland and paying off this massive debt pile is not right.

Ctrl+F my username, I've posted links elsewhere to back this up.

Brian Lenihan converted the "bank debt" to sovereign debt when he guaranteed it. That never should have happened. To renege on that debt is a default now whatever way you slice it.

I think part of the problem with Greece and Ireland is also that they are part of EU and are no more sovereign and in full control of their financial policies.

Ironically, Iceland's application for EU membership is cited as a major factor in its recovery.

The story here is not all that simple.

Not just part of the EU, but members of the euro zone: i.e., they have neither their own currencies nor their own central banks.

It probably helped that the amount was totally infeasible for a country of 320,000 people to pay back.

>Iceland did what any sovereign nation should do in that situation. They fixed it, and importantly they did it not by bailing out the bad guys but by taking everything from them!

Well, you can always solve your debt problems by refusing to pay creditors. I wouldn't read too much in to the doings of a country with the population of a mid-sized city.

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