Let the banks go down says Olafur Grimsson at the World Economic Forum in Davos
[Editors Note: Virginia is retired from the Vanderbilt University Medical School and at Harvard’s before that. She has been a long time American Heritage activist, and has spent many years fighting our corrupt illegal immigration system…Jim W. Dean]
Iceland is a small country, under 1 million citizens with a very homogeneous culture, so perhaps its lessons are not broadly applicable.
Nevertheless, I have been proud of the Icelanders since they let their banks take the consequences – bankruptcy – of their greedy bets on derivatives and other financial “products”.
Recalling the history of a few years ago, the Icelandic government initially said that the innocent Icelandic citizens would bear the burden of the banks’ irresponsible practices. But mass protests led to a rethink.
The Icelandic President called for a referendum on the general public assuming bank debts. The bankers lost.
Citizens voted to let the banks fail. Iceland went through a rough patch but, after four years, is prospering. At least one Icelandic banker has gone to jail.
This all makes one think that Americans should have started protesting when Alan Greenspan arranged for a bailout of Long Term Capital Management in 1999. Or maybe earlier, when Chrysler was bailed out in the 1980s, because nothing is sacred about car companies, either.
Bailing out businesses that make a mistake creates “moral hazard”. For the sake of super-profits, businesses [or households] are encouraged to take risks on the assumption that any losing bets will be covered by the all-suffering tax-payer.