[Homestead] Iceland -shortages, inflation, today's paper

Wendy crazygardens at verizon.net
Sat Oct 4 10:58:08 EDT 2008


Bob, my daughter send me the most awsome powerpoint presentation which 
explains what is happening overseas.  I wish I could post attachements on 
this board.  And, no, I don't have a private webpage to post it on.  If 
anyone would like it, send me your private email addy and I'll send it to 
you.  My email is crazygardens at verizon.net.

Wendy



>I read a list  where a man from Iceland has been posting for a little 
>while.  This is not from him, but from a news site in today's papers.  But, 
>according to him, not only has the Icelandic currency lost half its buying 
>power in the past year (60% in the past month), but they are actually 
>having problems importing items, including to the food markets.  Iceland 
>has always had a culture of frugality and strong savings.
> ***************************************************************************
>
>
> Iceland: When Too Big to Fail Becomes Too Big to Rescue
>
> by: Felix Salmon
>
> posted on: October 04, 2008 |
>
> We know that credit ratings agencies made enormous errors over the past 
> few years when it came to rating structured products. And of course it's 
> never easy to rate leveraged institutions, like banks, which are 
> susceptible to runs. But what about the more conventional credits, like 
> sovereigns?
>
> Last year, Moody's briefly gave all of Iceland's major banks, including 
> Glitnir, a triple-A rating, on the grounds that if they ever got into 
> trouble, the Icelandic government would bail them out. After much 
> ridicule, Moody's changed its mind. Clearly, it was silly to treat 
> Iceland's banks as though they were just as creditworthy as the sovereign.
>
> Fast-forward to today, and 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 (MCO) 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.
>
> http://seekingalpha.com/article/98477-iceland-when-too-big-to-fail-becomes-too-big-to-rescue
>
>
>
>
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