Reykjavík Grapevine - 02.07.2010, Blaðsíða 9

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8
The Reykjavík Grapevine
Issue 09 — 2010
The practice of lending money to
members of one’s own group for
profit is generally condemned by the
Bible (see, e.g., Deut. 23:20), and this
has proven to be exceedingly annoying to those
trying to construct a modern financial system.
Although church authorities eventually relented
on their strict interpretation of the Scriptures—
perhaps because they noted that the Jewish lenders
were getting all the goodies—they did retain the idea
that exploiting poor people is not such a good thing
for a peaceful society. Accordingly, lending was
permitted, but only at reasonable rates, and many
of the more imaginative collection practices were
forbidden.
In many places, such as the Western world
outside of Iceland, the spirit of fair competition and
concerns of consumer protection have resulted in
the practice of setting fixed interest rates for large
loans, such as mortgages and automobile loans. If
inflation happens to exceed the interest rate, it is a
boon to the borrower; if the interest rate ultimately
proves to be greatly above the rate of inflation, the
borrower may refinance at a lower rate. Since the
bank is holding most of the cards—security interests
in the loan collateral, expertise in predicting default
rates, valuation experts, legions of lawyers and debt
collection agencies—it only seems fair.
In Iceland, however, it has been the practice of
indexing residential mortgage and automobile loans
to inflation. This places all risk on the borrowers, and
ensures that the banks will always win.
A brilliant way of sticking it to the banks?
Surprisingly, poor consumers don’t particularly like
this system, and are willing to go to great lengths
to avoid guaranteeing the banks’ profits. One such
device marketed in the past decade was the foreign
currency loan. A foreign currency loan, as devised by
our banks, indexes the interest rate, not on inflation,
but on a basket of foreign currencies. While the
króna and the inflation rate were both flying high,
this seemed like a brilliant way of sticking it to the
banks.
Unfortunately, of course, the banks didn’t get
where they were by committing random acts of
kindness. Although it should have been obvious to
their legions of lawyers, these loans were in blatant
violation of a law passed in 2001.
Now that Iceland’s Supreme Court has pointed
out this inconvenient truth, no one knows quite what
to do. Were the loans void ad initio? Should they be
reformed retroactively? Should the collateral seized
when consumers defaulted be returned? Should the
ill-gotten origination fees and excess payments be
disgorged?
The concept of moral hazard cuts both ways
in this situation. On the one hand, the consumers
had at least some idea of risk they were taking, and
should have to pay the price when they lost their
bet. On the other hand, the banks were in a vastly
superior position to determine the legality of these
loans. If the banks are not forced to accept some
of the risk in the financial system, they will have
no incentive to develop good intelligence or sound
lending practices, or to follow the law.
These loans have caused much pain. Relieving
consumers of the excess risk to which they exposed
themselves is the lesser of the two evils in this
situation. The banks’ purported expertise could have,
and should have, saved them. They are, after all, in a
position to recoup their losses from the lawyers who
signed off on these loans, but the consumers have
no other recourse.
Loans And Moral Hazard
Will the banks always win?
Opinion | Íris Erlingsdóttir
So it turns out the old adage is true: there are more
sheep than people in Iceland. Just check out the
graph to the right.
There are some interesting anomalies to note in
the graph however. Most prominently, the sudden
plummet of the number of sheep in 1784, the only
year where there were more human beings than
sheep in the country (although only by a margin of
0.1%). This is mainly attributed to the eruption of
Lakagígar from 1783 to 1785 which had disastrous
effects on agriculture and wiped out most of the
sheep population. Since Iceland at the time relied
on the sheep so much for sustenance, it in turn took
a toll on the human population as well. Maybe that
eruption of Katla we‘re all waiting for will have the
same effect!
Two other notable drops can be spotted on the
chart, one between 1944-1951 and another since
1984, however the cause of these drops are still yet
to be determined.
Sheep Ahoy!
Iceland | Statistics
REBECCA LOUDER
0
150.000
300.000
450.000
600.000
750.000
900.000
20091995197519551935191518951875185518351815179517751755
1784
Sheep 49.615
Population 49.753
Sheep vs. human 1755 - 2009
2009
Sheep 469.429
Population 319.368
Source: Statistics Iceland and DataMarket
178
3
1783 Sheep
82.6 %
Humans
17.4 %
1784
Sheep
49.9 %
Humans
50.1 %
1784
FACTS. INSIGHT. BEAUTY.
The cool statistics come from our cool friends at
They've got an almost endless amount of sexy data, free for all,
at www.datamarket.com. Also check out www.grapevine.is/
statistics for an interactive graph, y'all!
Special | Best Of Reykjavík
For the last 40 years, Ísbúð Vesturbæjar has
served some most delicious ice cream in Reykja-
vík. A well-known favourite amongst locals, this
neat shop that looks like the inside of a spaceship
is tucked away in the lovely west end of Reykjavík.
It has consistently offered some staple varieties of
soft serve along with some fabulous toppings to
crazy up your cone.
We asked owner Baldur Bjarnason how he got
started in the ice cream business. “I worked as
a pilot for Icelandair... I have no idea what I am
doing in this ice cream business,” he admits. “It’s
fun, though.” He says Ísbúð Vesturbæjar has a lot
of young customers and very old customers that
have been loyal to the store for many years. “It’s
a nice business. It’s always busy, and it’s a lot of
work.”
Baldur says that one of the most popular ice
cream choices is vanilla ice cream dipped in
chocolate sprinkled with snickers. There are no
plans to change anything, because Baldur thinks
the customers wouldn’t like change. “We serve
old-fashioned ice cream which is different from
other places’,” he tells us, refusing to divulge any
secrets on the recipe. “We are an independent
store. We make our own ice cream which you can-
not buy anywhere else. It’s a special place.” Ísbúð
Vesturbæjar’s ice cream is one for the ages that
will hopefully keep on service up delicious cold
treats for years and years to come.
Ísbúð Vesturbæjar
Hagamelur 67, 107
EMILy BURTON
JULIA STAPLES
you Have To Try It
Ísbúð Vesturbæjar’s legacy of tasty, old-fashioned ice cream