Reykjavík Grapevine - 16.07.2010, Page 6

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The Reykjavík Grapevine
Issue 10 — 2010
Welcome to Iceland
Here’s how to find
www.ja.is
WHAT?
WHO? WHERE?
People Businesses Maps Direction
Quick guide to the information
you need while enjoying your stay
After the Icelandic Supreme Court
invalidated loans indexed to foreign
currencies, the banks and regulators
have struggled to determine what
interest the borrowers should pay—the stated
interest in the loan agreements or the much
higher inflation-indexed loans typical to Icelandic
contracts.
The borrowers who took out inflation-indexed
loans are adamant, however, that the FX-indexed
loans be adjusted to mirror their own. Although
these borrowers expressed no pity when the
Icelandic króna tumbled and principal of their
neighbours’ FX loans doubled, they now protest
that their neighbours should not reap a windfall
which, they say, they will have to make up with
their taxes.
Two of Iceland’s three major banks have
already passed to private ownership, and all
three say that they will be able to withstand the
devaluation of these loans (in fact, the loans had
been discounted by 50% when the banks were in
receivership, so the devaluation will not have any
adverse effect on the banks’ books, though I’m
sure the banks would just as soon collect the full
amount).
So what are the inflation-indexed borrowers
so worried about? They received exactly what
they bargained for. Why does it gall them so to see
their neighbours beat the system for a change,
especially since it seemed that the neighbours
were being mercilessly mauled by the system?
The real question should be: why do
Icelanders, alone in the world (to the best of my
knowledge) have mortgage and car loans indexed
to inflation?
In other countries, the interest charged on
a large long-term personal loan like mortgages
and car loans represents a gamble by the lender
that the rate of inflation will remain lower than
the interest rate for the term of the loan. If the
rate of inflation spikes, the payments will soon be
miniscule compared to the borrowers’ earnings. If
the borrower took out a loan when interest rates
were high, and inflation is tamed, he will then
refinance at the lower rate, so the bank will not
get a windfall.
Icelandic regulators should take note that
the banking systems in the United States and
Europe have somehow survived under this system
throughout the entire industrial era, and have
even managed to make a bit of a profit. In fact, it
is in the banks’ interest that inflation be tamed, or
they don’t get much in the way of profits.
By indexing loans to inflation, Iceland in effect
guarantees the banks a profit, regardless of their
competence in assessing risk. It has absolved the
Central Bank from exercising more responsible
control over the money supply. It also has the
effect of feeding on itself. Each time the rate is
adjusted to take into account the previous month’s
rise, it bumps up the inflation rate a bit more,
which increases the next month’s rate, etc. It’s like
gambling in a casino—the house always wins.
So, instead of expending energy complaining
about the FX borrowers’ sudden change in
fortune, the inflation-indexed borrowers should
be demanding that they be allowed to opt-in to
similar deals from the banks. Instead of fighting
each other, we should stand united against the
bank cartel that has kept us under its thumb for
too long.
Sour Grapes Over
Icelandic Loans
Opinion | Íris Erlingsdóttir
We are loving the maths and indisputable facts these
days, so once again we have some wicked ass stats
from our buddies over at DataMarket. This time
around we have a nice graphic of the area of Icelan-
dic nature that is protected.
The square-pie graph to the right here repre-
sents the entire area of Iceland. As you can see a
full 5% of the country is a designated national park.
There are four national parks in total, but one of
those is Vatnajökull, the largest glacier in Europe,
so one can’t really do too much with that now can
we? Nature reserves make up 3% of the total land
area, while country parks (which differ from national
parks somehow), and other uses make up 1% each,
bringing the total amount of protected natural land
to 10%. Which is a lot. Just to put it in perspective, if
10% of the U.S.A. was protected land that would be
roughly Texas and Oregon combined. Think about it.
Check out an interactive graph (that's not square!) at
www.datamarket.com (short link: www.//url.is/3rl)
The Protected Island
Iceland | Statistics
REBECCA LOUDER
General Area
Other
Country Parks
Nature Reserves
National Parks
FACTS. INSIGHT. BEAUTY.
This Tuesday, a formal proposal was submitted to
the Public Representative of the Icelandic Parlia-
ment, signed by Björk Guðmundsdóttir, Jón Þóris-
son (the Icelandic assistant to Eva Joly) and the
writer Oddný Eir Ævarsdóttir. The proposal con-
cerns the sale of Iceland's natural resources to the
company Magma Energy, and, according to its au-
thors, “aims to initiate an open discussion and en-
courage reconsideration of this sale, ensuring that
the interests of the public are being protected and
that clarification is achieved on all aspects of this
decisive case concerning the future of Iceland.”
In addition to the proposal, Björk, Jón and
Oddný also put forward several questions they
feel must be addressed by Iceland’s government,
parliament and the public before the business ex-
change can continue. They may be read below.
Björk is planning a press conference (with a
performance!) on Monday at 16:00 in Reykjavík’s
Nordic House, but we called her up and asked her
about the statement for this issue.
We know you’ve actively addressed various
environmental matters over the last decade,
and that you have expressed deep concerns
about the Magma deal (as per your letter we
published this spring). What is it about the
Magma deal specifically that worries you so?
“How we react to this particular case will set a
strong precedent for how we will handle matters
concerning our energy resources in the future. We
are not in a strong position—post-banking col-
lapse, Icesave and the like—and many parties will
try and take advantage of our situation to try and
force through ‘good deals’.
I also think it is overwhelmingly tragic that after
everything that’s gone on—all the bankruptcies,
the rise in unemployment, the pots and pans revo-
lution and the SIC report—that we are still selling
our wealth and resources at bargain rates in shady
deals made behind closed doors. Have we learnt
nothing? We are still behaving like a colony!”
THE qUESTIONS:
MEMBERS OF THE PARLIAMENT! GOVERNERS! WE
ICELANDERS ASK YOU FOR A TRANSPARENT, OPEN
DISCUSSION AND RECONSIDERATION CONCERNING
THE SELLING OF THE ACCESS TO OUR NATURAL RE-
SOURCES!
-In two weeks Magma Energy Sweden AB could become
the biggest shareholder of HS Orka. Then the company
would have access to some of our most important natu-
ral resources for 65 years with an optional extension for
another 65 years. 130 years! Is this in accordance with
the laws that state only the Icelandic government should
have the right to harness and govern the natural resourc-
es of Iceland?
-Shouldn’t we ask for an investigation of this deal and
get a report on the business exchange concerning our
resources, as we got a report on the banks?
-Shouldn’t the nation be able to decide for itself if it is
willing to sell off its natural resources, by means of a law
change to enable a national referendum?
-One of the IMF’s suggestions is that Iceland should
open up access to its natural resources to foreigners.
According to the letter of intent signed by the govern-
ment last April, it seems that those suggestions will be
followed. Are we thus going to use our nature in this way
to pay off the Icesave-debts of those few Icelandic ven-
ture capitalists?
-Wouldn’t we be in a better position to pay off our debts
and get out of the crisis if we retain the rights to our
resources and get the profit ourselves from harnessing
them?
-We don’t know exactly who the shareholders of Magma
Energy are. Is it wise to legalise the deal without know-
ing that first?
-Allegedly the Magma deal is about the benefits of for-
eign investment. How does that compute with the fact
that 70% of the purchase price is financed with a local
bullet-loan with collateral in the shares?
-Could the selling of the rights to exploit Icelandic natu-
ral resources to Magma Energy be a continuation of the
infamous Rei-case?
-Is there anything that guarantees Magma won’t take all
the profit from harnessing our natural resources out of
Iceland?
-Is there anything that guarantees jobs will be created in
Iceland through this deal?
-Do we at all profit from this deal? Is it possible that the
profit all goes to the middle-men that we the people and
even the government do not know of?
-How are these two things compatible: to promote more
heavy industry and to hold our promises against pol-
lution? Is Iceland not going to participate in the fight
against global warming?
-In the future, water will probably be the most valuable
resource in the world. Will the deal with Magma Energy
possibly set a legal precedent, and be used in the future
to enforce the sale of more natural resources?
-What will our grandchildren think of the deals we’re
making now?
Björk Speaks Up On Magma Again
Energy | Rotten Magma Deal
“Have we learnt nothing?”
We called up head Magma honcho Ross Beatty and asked him
if he would like to answer some of Björk's questions. He said he
would, so expect to read what he thinks in our next issue.
HAUKUR S. MAGNúSSON
MERT ALAS & MARCUS PIGGOTT / FROM BjORK.COM
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!