Editor’s Note: Melanie Andrews is a longtime Planet Waves research assistant in the UK. She recently experienced a direct effect of the financial crisis in her local township, which had all of its money invested in banks in Iceland that failed. Eric asked her to tell her story. — Rachel Asher
Dear Friend and Reader,
Almost everyone seems to be pinning the blame for this world wide ‘crisis’ on the US mortgage market and out of control lending of money that didn’t actually exist, but I will fess up for my European banking brothers and sisters — it has been the same situation in Europe for some time, with property prices so out of control in the UK that houses on my street went up from ВЈ20,000 to ВЈ90,000 in 6 years — and with people being encouraged (to keep the market afloat) to take mortgages up to 6 times their income.
All hunky dory with the bankers at the top when it works as seamlessly as a Busby Berkeley routine. What is happening now though isn’t a story of an over-confident economy getting ahead of itself. The whole idea of our financial system is being shook, free market economy –- or Thatcherism as we sometimes call it in the UK — is failing.
Many with just an ounce of common sense have thought unregulated permanent growth was a crummy idea, but having always been rubbish with numbers, the problem felt ‘out there’ to me and a bit unreal. I’m now starting to understand the extent of the interweaving of financial banking with a story that hit the UK headlines last week and the realization that the break down of banking institutions worldwide has had repercussions close to home — my home.
After the shock in the US, news crept in a couple of weeks ago that Iceland was also having an economic meltdown, in reaction to the US situation and, with one bank, Glitnir, already nationalized, a loss of confidence in it’s banking institutions.
It quickly became apparent that a financial problem in Iceland was also a problem for the UK as Landsbanki, one of Iceland’s main banks, was about to fail, taking with it its UK-based sister company. The unimaginatively named sister company ‘Icesave’ had huge investment from the UK, and also the Netherlands, not just in terms of people like you and me but large institutions like charities and football clubs. Also, many local councils in the UK like your state branches of government in the US had a chunk of their sterling invested in Icelandic banks and UK arms of Icelandic institutions.
The Icelandic Government moved in and took over Landsbanki last Tuesday but still yo-yo-ing stock markets, as had already been seen in the US with Government assurances, did not calm nerves. Iceland insisted the bank would not be declared insolvent, but this statement of confidence had the opposite effect — saver’s money in the UK was still not fully protected and Iceland was coping with the disintegration of all of the nation’s banks.
And so, another improbable act in an improbable situation took place, with the UK using laws created to control the assets of suspected terrorist organisations to freeze the assets of the now-nationalized Icelandic bank in an attempt to protect British investors. Understandably, Iceland felt unhappy at having terrorist law targeted against them. I felt slightly alarmed as a hatchet job law was applied in a one-size-fits-all way to a country I thought we were friendly with.
The UK government promised to cover any shortfall in payouts for individual customers should Landsbanki permanently collapse, however it stopped short of protecting the ВЈ840 million pounds invested by local governments. Ironically it is the UK government that advised these local councils on where to invest their cash.
It also turns out my own local council, Nottingham, is the second-worst hit with a potential loss of 42 million pounds, around a quarter of its cash. That’s a significant amount of cash for a city like Nottingham to absorb the loss of. There is already talk should UK/Icelandic government negotiations fail that local taxes will be raised to what may end up being intolerable levels as the UK is already coping with an energy crisis that causes crippling charges. Friends of mine who work at the local council are unsure they will get paid this month as so much money was tied up in Icesave.
I have been watching these developments in World economy over the last few weeks with the sort of misplaced gleefulness usually reserved for really awful reality TV and I fully intended to give you my personal heads up on this situation in Europe whilst still sitting on the happy side of glib.
That has changed as I find myself affected at a basic level I wasn’t really expecting. The sort of uncertainty that causes financial rules more sacrosanct than the 10 commandments to be broken on a daily basis has become the new rule, and those rules themselves are at the whim of something as nebulous as ‘confidence’. Most Capricorn types I know, including myself, have issues around confidence and security, maybe out of all this a more human-friendly finance system can develop, based on something more concrete than confidence.
Yours & truly,
Melanie Andrews