Iceland has indeed bailed out Glitnir. But here's the thing: Iceland's credit default swaps are now suggesting that the sovereign itself is a distressed credit.Contracts on Iceland's debt jumped to 17.5 percent upfront and 5 percent a year to protect 10 million euros ($13.8 million) of bonds.
This is not how triple-A sovereigns behave. It's as though the analysts at Moody's were only able to see one step ahead, and not two: they could anticipate that Iceland would bail out its banks, but they couldn't anticipate that when a tiny country bails out a bank whose assets vastly exceed the country's own GDP, then the sovereign itself loses much creditworthiness. One scary datapoint: the assets of Kaupthing Bank amount to 623% of Iceland's GDP, which is possibly why its own credit default swaps are trading somewhere over 2500bp.
How bad can things get in Iceland? Here's what one local emailed Tom Braithwaite:
They are fighting powers that they are powerless to fight. It's like tackling a storm raging in the sea with a teaspoon.
The main supermarket can't get imported goods because they have no currency. The shops are half empty. One of the store managers has advised people to start hoarding. We're running out of oil. And winter came last night - about a month early.Received opinion has it that if Iceland backstops the Icelandic banks, then the other Nordic countries, or someone, will backstop Iceland. Which might be true: we'll find out "very soon". But there's no news yet.
Lets hope this is not a model for our future.
So if we wedge the eight of spades right about here, it oughta hold?
Should I run to Target and buy that hatchet that gleamed so enticingly at me for a couple weeks after reading The Road?
Megan,
One of the reasons you rejected historical comparisons to the financial crisis in Sweden was that Sweden was such a small country relative to the U.S. -- Iceland is a small country relative to Sweden, with only about 1/30th of Sweden's population.
There was a guest on CNBC last week -- I wish I remembered his name -- who talked about how the financial crisis was worse in Europe because there were banks that could fail that would be too big for their governments to bail out. He didn't mention Iceland specifically though.
FYI: I'm sure you're aware of all the hubbub last year about a small handful of Bear Stearns hedge funds "conspiring" to bankrupt Iceland. (?)
I make no comment as to whether they caused the current situation or merely accurately foresaw it.
Well, at least Global Warming will bail Iceland out of having to spend so much on heat. Oh, wait, the cite says that winter came a month early? Everything is suddenly spinning out of control!
.....but Iceland is still the most wonderful place to live on earth.....
http://goiceland.org/page.php?80
....at least that's what the UN says.....
Canary in a gold mine ?
Interesting. Those kind of credit spreads were argued by many last fall to portend failure for the U.S. effort in Iraq. How do Iceland bonds price relative to Iraq bonds now, I wonder?
Clearly they have gone insane in Iceland and are imaging things. Winter could not be there a month early. Megan has told us that global warming is a fact and the result of all of our immature consumptive lifestyles.
I also would like to use this post to point out that Megan is wrong about a lot of things that I think/hope/pray/know she is wrong about.
"Clearly they have gone insane in Iceland and are imaging things. Winter could not be there a month early. Megan has told us that global warming is a fact and the result of all of our immature consumptive lifestyles."
Translating John - "Who cares if we may be facing the financial End of Days? I get to score a cheap and nonsensical debating point on the subject of climate change! Yipee!"
Mike
The FT Iceland post has an update that is somewhat calming:
Would the worst-case scenario be that Iceland becomes a part of Denmark? Something like this happened to Newfoundland, which resulted in it becoming part of Canada.
It's a minor point, but canaries were used to detect methane gas in coal mines. Carboniferous methane is often found in coal mines.
Sigh. Looks like you were trying to be just slightly too clever with your metaphor, Megan.
No, no, John. You must have missed the part where the bien-pensants explained to us simpletons that a single year of declining temperatures -- even if unpredicted by the sophisticated models -- does not disprove the global warming theory.
Indeed, the past decade of slightly declining global temperatures -- despite the fact that none of the much vaunted climate models forcast anything like them -- is in no way proof that the globe is not warming.
Going forward, recent papers predicting another 10 to 20 years of mild cooling also do not disprove global warming. You see, 20 years of cooling do not disprove the warming models. Because those models can be adapted to incorporate that cooling.
I know what you're thinking: anybody can adjust models retroactively, what use are they if they're not predictive in any way for any length of observed time? Clearly, you just don't understand climate science.
Also, in the future could you please refer to it as "Climate Change"? It's embarassing to keep talking about "Global Warming" as the globe cools. Since temperature is always variable, Climate Change is a much better bogeyman.
I'd also note that we shouldn't really be upset about the pending economic collapse. After all, it was just this kind of collapse that enabled Eastern Europe's amazing emissions reductions from the early 90's to today!
This will save the planet!
Yes Blighter I will remember to refer to it as "climate change". I also won't mention any tiresome references to the fact that solar activity is at an all time low and it just might be that the sun has something to do with our climate. No, all things revolve around man and we must be the cause of everything.
But you need to stop giving pesky facts and expecting predictive results from climate models. That is nothing but 20th Century Science. Our 21st Century science is done by consensus not experimentation and prediction.
Half-Canadian:
It seems less likely.
Newfoundland went from self-governing back to British rule to a hand-off to Canada, under the same crown the whole time, with both Britain and Canada speaking the same language as Newfoundland.
Iceland has been a republic fully independent from the Danish crown for 64 years, after a referrendum that was 97% in favor of full independence and 95% in favor of republican government, and doesn't speak Danish.
Of course we should refer to it as "climate change". Climate aka weather usually changes on a day to day basis and even within the 24h circle. This therefore is a much accurate description of the phenomenon.
How in the hell did this become about global warming?
I have appointed myself the guardian of trivial sniping in this post.
Stan: climate and weather are different things.
Nordic Lunatic,
So the worst-case scenario would be an Argentina-style meltdown?
Personally, I think I'd prefer 'repatriotism' (is that the anti-secessionist term?) to years of poverty and scarcity.
Canary in a gold mine?
Apparently, this particular canary cannot survive in the presence of inadequate bling. I suspect it's actually a very useful canary to have around if you believe an impending financial crisis might be approaching.
I am hoping just as feverishly that it does fall, there is a major collapse, infrastructure fails, and beltway libertarians are set upon by roving gangs (ala Cormac McCarthy's The Road). Maybe, just maybe, those that survive would focus on principles, instead of being concrete-bound pragmatic dipshits who think you can create money from nothing, have government control the printing press, and yet we can elect people who will give us less taxes and more freedom if we can just be snarky enough towards the statists who always seem to float to the top.
Let it all burn.
I´m sorry but i think that e-mail from a fellow Icelander is just pure crap. It is true that one of Icelands major store owners said that they couldn´t get credit with there stockers but that is just the case for that one company. And there is no wonder either as one of their major assets was the bank that Iceland bailed out.
Another store came the same day and said that they did not have the same problem. Icelands goverment also came and said that the Icelandic Federal reserve held currecy that was enough to pay for Icelands imports for 8-9 months without ANY exports.
It´s a fact that Icelands economy is to small to handle the banks here through this crises but it´s also a fact that this crises originates not from Iceland but from the US. You have to see that a country that has so much land and so much renewable power cannot have such a weak krona for long. The alunimum production in the country is estimated to almost double in the next few year along with alot of other export opputunityes so happy days are on their way.
Oh and yes, Lane Honda, get your facts right before you comment cuz you just sound dumb at the moment :)
John: You might prefer "low during the age of instrumentation" rather than "all time low".
I'm pretty sure that sometime in the past few billion years solar output was at least once lower than it is now.
Back on topic, I should ask my Iceland Source if Anything Is Going On.
Personally, I think I'd prefer 'repatriotism' (is that the anti-secessionist term?) to years of poverty and scarcity.