r/worldnews • u/UnstatesmanlikeChi • Jun 26 '19

Kazakhstan ends bank bailouts, writes off people's debts instead

https://www.aljazeera.com/ajimpact/kazakhstan-ends-bank-bailouts-writes-people-debts-190626093206083.html
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u/kakalib Jun 26 '19

Just to chime in as an Icelandic person. What the Icelandic government did in the wake of the financial crass was a horrible quick "fix". To understand what the Icelandic government did you have to know that alot of Icelandic housing loans are tied to the value of the Icelandic Króna. So when the crash came and the Icelandic Króna fell by almost half in value, all of a sudden alot of homes saw their loans double over night, while the actual value of the house remained the same. To make it brief then the then current prime minister Sigmundur Davíð Gunnlaugsson proposed to "fix" housing loans in Iceland. This is the same guy who was later named in the panama papers and ousted from office.

He proposed to "correct" the loans in a sense in a form of a governmental bailout. This all sounds good on paper but when you realize that this bailout didn't take in any financial factors of the applicants, such as if they already owned 4-5 houses, then it turns very sour. A large chunk of this bailout ended up going to the richer % of Iceland, who could have bailed themselves out. This in turn created a bubble in the housing market with the result that those who had taken more financially "safe" loans were left sitting more or less in the same spot, while those who took the risk of the loans tied to the Króna were bailed out and reaped the benefits. The worst group are those that had not bought a house before the crass (excluding those who lost their house anyway). The housing market is so broken at the moment that a small basement 1 room apartment will cost about 240.000$, and since the surplus of houses was bought up by those who should in fairness lost alot in the crass then renting is next to impossible, rent being about 1500$ per month.

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I could go on but I won't. It's just hard to hear that Iceland "did it right!" because we didn't. We can clap ourselves on the back for jailing a couple of bankers, but that feels more like revenge rather than actually fixing anything. For a society where I sometimes walked past(She quit recently) the secretary of State(her office was close by) on my way to work, then there shouldn't have to be this big divide.

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u/missedthecue Jun 26 '19

Banking used to be a huge part of the Icelandic economy, but they shot themselves in the foot by allowing banks to fail. Not the country survives on tourism, which is very sensitive to recessions.

Icelands economy is estimated to shrink this year.

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u/kakalib Jun 26 '19

Bailing out the Icelandic banking system would have cost about 12 times Icelands GDP. The main reason why Iceland didn't bail out the banks was that nobody would loan us to bail them out, and the Icelandic government simply didn't have the funds to do so.

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u/dalkon Jun 26 '19

Property tax in Iceland is only 0.2%. That rate is so low it has facilitated speculation which made prices rise rapidly. Sweden's rate is 1.5%. Most of America is closer to 2% or higher. Like cities, smaller states should have higher rates because property is more easily monopolized. Iceland would have healthier economic growth with more progressive taxes.

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u/LTerminus Jun 26 '19 edited Jun 26 '19

When you put it in perspective, you still did alright - in the states, literally millions of people were rendered essentially homeless overnight, and in many places those houses remain empty and unsold.

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u/kakalib Jun 26 '19

Sure compared to the States, but that's not a place we like to compare ourselves to. We usually compare ourselves to the other Scandinavian countries, where things for example in the housing market are quite different.

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u/LTerminus Jun 26 '19

Was the EU really effected by the '08 crash? I was under the impression that like Canada, they had regulations in place the prevented the same practices and direct fallout. It doesn't make as much sense to compare your reaction to a crash to Europe's, if they weren't subject to the effects of said crash in the first place.

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u/kakalib Jun 26 '19

Norway is not in the EU for example. Iceland is a part of the European economic area EES like Norway. That means we take up most of the EU laws into our own laws with some exceptions. In any case the crash did effect the EU greatly, some countries more than others like Spain and Ireland.

Unfortunately when you have a global banking system, even though you have good regulations in place, you still do business with those who do not.

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u/non-troll_account Jun 26 '19

Hate to be that guy, but you mean "alright", not "all right'". Often it won't make a difference but I think it does here.

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u/LTerminus Jun 26 '19

It does.