The Icelandic Success Story

December 8, 2012

http://azizonomics.com/2012/12/08/the-icelandic-success-story/

Emotionally, I love Iceland’s financial policies since the crash of 2008:

Iceland went after the people who caused the crisis — the bankers who created and sold the junk products — and tried to shield the general population.

But what Iceland did is not just emotionally satisfying. Iceland is recovering, while the rest of the Western world — which bailed out the bankers and left the general population to pay for the bankers’ excess — is not.

Bloomberg reports:

Few countries blew up more spectacularly than Iceland in the 2008 financial crisis. The local stock market plunged 90 percent; unemployment rose ninefold; inflation shot to more than 18 percent; the country’s biggest banks all failed.

This was no post-Lehman Brothers recession: It was a depression.

Since then, Iceland has turned in a pretty impressive performance. It has repaid International Monetary Fund rescue loans ahead of schedule. Growth this year will be about 2.5 percent, better than most developed economies. Unemployment has fallen by half. In February, Fitch Ratings restored the country’s investment-grade status, approvingly citing its “unorthodox crisis policy response.”

So what exactly did Iceland do?

First, they create an aid package for homeowners:

To homeowners with negative equity, the country offered write-offs that would wipe out debt above 110 percent of the property value. The government also provided means-tested subsidies to reduce mortgage-interest expenses: Those with lower earnings, less home equity and children were granted the most generous support.

Then, they redenominated foreign currency debt into devalued krone, effectively giving creditors a big haircut:

In June 2010, the nation’s Supreme Court gave debtors another break: Bank loans that were indexed to foreign currencies were declared illegal. Because the Icelandic krona plunged 80 percent during the crisis, the cost of repaying foreign debt more than doubled. The ruling let consumers repay the banks as if the loans were in krona.

These policies helped consumers erase debt equal to 13 percent of Iceland’s $14 billion economy. Now, consumers have money to spend on other things. It is no accident that the IMF, which granted Iceland loans without imposing its usual austerity strictures, says the recovery is driven by domestic demand.

Continue reading The Icelandic Success Story →

Wall Street Uses Third Way to Lead Its Assault on Social Security

Posted: 11/13/2012 8:51 am

William K. Black

Assoc. Professor, Univ. of Missouri, Kansas City; Sr. regulator during S&L debacle

Third Way, lobbyists for and from Wall Street who are leading the effort to enrich Wall Street by privatizing Social Security, was created by Wall Street to fool some of the people all of the time. I have written previously to expose their fictional claims to be a moderate or liberal Democratic group.

Eric Lautner documented Wall Street’s effort to become even wealthier by privatizing Social Security in articles and his recent book (The People’s Pension: The Struggle to Defend Social Security Since Reagan (AK Press)).

I showed that Third Way makes itself useful by providing a faux “liberal” or “moderate” “Democratic” quote machine that can be used to discredit Democrats and Democratic policies such as the safety net. I gave examples of how Third Way gave aid and comfort to the effort to defeat Elizabeth Warren and the effort to unravel the safety net. Third Way continues to prove that you can fool some of the people all of the time.

The National Journal ran an article on November 8, 2012 entitled “Left Divided over ‘Grand Bargain.'”

“Groups concerned with protecting entitlements such as Social Security and Medicare are finding themselves at odds over whether an overarching fiscal deal during Congress’s end-of-year session would help or hurt their cause.The AFL-CIO organized a day of action on Thursday–part of a broader post-election campaign to protect entitlements–with dozens of events scheduled nationwide to urge lawmakers to avoid such a deal.

A ‘grand bargain’ to prevent the year-end onset of tax hikes and spending cuts ‘could cut Social Security, Medicare and Medicaid benefits, all to give tax cuts to the wealthiest Americans,’ the labor group argued on its organizing site. But the union campaign is being met with resistance from others on the left.

‘We, like you, are ecstatic about the reelection of President Barack Obama and what it means or American growth and prosperity,’ wrote Jim Kessler, senior vice president for policy for Third Way, a liberal think tank with a centrist approach, in an open letter to the groups involved with the day of action. ‘However, as fellow progressives, we were disappointed to learn that you will be leading an effort against the President to impede a balanced grand bargain.’

In order to protect safety-net programs, such as Social Security and Medicare, the left must embrace reform, Kessler writes.”

Let me attempt again to make the basic facts clear. Third Way is not a “liberal think tank.” It does not take “a centrist approach.” It is not run by “fellow progressives.” It is not concerned with “protecting entitlements.” It is not even a “think tank.” Third Way is a creature of Wall Street. It’s version of “protecting” the safety net was made infamous during the Tet offensive in Vietnam when the American officer explained that “it became necessary to destroy the village in order to save it.”

Third Way is the Wall Street wing of the Democratic Party, which seeks to defeat Democratic candidates like Elizabeth Warren running against Wall Street sycophants like Senator Scott Brown and seeks to unravel the safety net programs that are the crown jewels of the Democratic Party. Wall Street’s “natural” party is certainly the Republican Party, but Wall Street has no permanent party or ideology, only permanent interests. Third Way serves its financial interests and the personal interests of its senior executives. Wall Street has always been the enemy of Social Security and its greatest dream is to privatize Social Security. Wall Street’s senior executives live in terror of being held accountable under the criminal laws for their crimes. They became wealthy by leading the “control frauds” that drove the financial crisis and the Great Recession. This is why Wall Street made defeating Warren a top priority.

Continue reading Wall Street Seeks to Unravel Safety Net →

by Randy Shannon

The heart of the argument to cut Medicare is that runaway medical costs will outpace gross domestic product and bankrupt the USA. This argument is based on budget predictions by the Congressional Budget Office (CBO). We heard echoes of this argument in the recent primary and general election: “We will have to do something about Medicare costs.”

These predictions are so bogus that two Federal Reserve economists have debunked the CBO methodology and conclusions as economic malpractice. This is a very significant blow to the “out of control deficit” argument and should be widely discussed and disseminated. Below is commentary on the Fed economists’ paper by economic blogger Yves Smith.

Fed Budgetary Experts Demolish CBO Health Cost Model, the Lynchpin of Budget Hysteria