Posts Tagged ‘Indexation’
Thursday, March 18th, 2010
Because of time limitations (only 24 hours in the day) I am very grateful to Vilhjalm A. and Gandri for putting down in words exactly what I have been pondering about what Johanna Sigurdardottir calls the “definite solution to finally meet the required needs of Icelandic households”.
From Vilhjalm A. (translations mine ):
Finally the government has come out with their version the of the “skjaldborg” – the fortress around Icelandic homes.
Here’s what the government proposes to do:
- special solutions for those with low income or have suffered short term drop in wages
- solutions for people with two homes
- lower limits on penal interest rates
- on foreclosure, the market value of homes will be withdrawn from claims
- people will be able to live in their home for 12 months in spite of bankruptcy or foreclosure
- the limits on collection fees lowered
- rules on tax claims write offs reviewed
- moderate write offs tax free
- large write offs taxed
- effects of price indexation limited
The average employed working Icelander with a mortgage gets ….. just about nothing. No reduction / write-down of the mortgage principal. No way to negotiate with the banks, except by filing a lawsuit against them.
But if you own TWO homes, congratulations, you get relief – just give back one of the houses!
Oh my! This is going to be costly. How should we finance the rebuilding? – Johanna and Steingrimur at the household debt cliff drawn by Halldor Baldursson
See the critical article by Samtök lánþega blog, entitled “Ekki neitt !” (Nothing!):
http://gandri.com/?p=885
There is nothing on previously defined solutions for mortgage adjustments.
There is nothing there on actions to force financial institutions to abide by the laws.
There is nothing there about interpreting unclear contractual obligations in the favor of consumers, as is clearly stated in Icelandic law that it should.
There is nothing there about actions to stop collection methods based on contracts which have been judged illegal by Icelandic courts.
There is nothing there about speeding up those court cases awaiting a Supreme Court’s decision.
There is nothing on the ideas of individual MP’s about the so-called “key-bill”.
There is nothing there on the ideas of individual MP’s about lowering the statue of limitations on individuals from 10 years down to 4.
Vilhjalm A again:
In the meantime the banks are happily handing out huge loan write-downs to businesses and granting themselves salary bonuses.
I don’t think it’s possible any longer to pretend that the government has some secret plan or motive to help the average Icelander. And the do-nothing strategy is not the result of ineptitude, either. It’s looking more and more likely that the real intention of the government is to reduce the need for imports by depriving the average person of almost all available discretionary spending, first by increasing taxes on everything and second by making them spend almost all their money on paying off loans to the banks. You can’t spend what you don’t have.
Finally my own two cents: The way they presented these “solutions” does not bode well for the Social Democrats or the Left Greens. Sure it is a step in the right direction, but the focus is on soothing the pain for those who overextended themselves during the good times, a strange emphasis for the so-called “welfare” government. It might be possible that there has developed a siege-mentality within the government after the monumental tasks it has faced since assuming the responsibility to clean up in the economic disaster area. But by calling this a definite solution and pretending like this is going to put things to rest regarding the massive household debt Icelanders are facing because of the collapse of the krona, the government appears out of touch.
Related posts:
- Discussion On Household Debt Held Hostage By Progressive Party
- The Icelandic Banks Question of The Day
- Iceland In Debt
Tags: 12 Months, Contractual Obligations, Critical Article, Debt Solutions, Definite Solution, Filing A Lawsuit, Financial Institutions, Foreclosure, Fortress, Halldor, Household Debt, Households, Indexation, Johanna, Mortgage Principal, Penal Interest, Special Solutions, Spite, Time Limitations, Wages
Posted in Iceland, Market | No Comments »
Tuesday, March 9th, 2010
“I think what is happening in Iceland proves that our own currency is very beneficial to our needs. You don’t have to go far back to see that the currency developments have increased the competitiveness of Icelandic businesses and industries”.
- Steingrimur J. Sigfusson, Finance Minister of Iceland two years after an economic collapse all but wiped out the Icelandic financial sector after years of “hot money” flowing into the country because of exorbitant interest rates imposed to battle inflation.
He is crediting the arsonist for bringing a bucket of water to the fire.
What he is really celebrating is Iceland moving one step closer to the developing world and improving our “competitiveness” through a worthless currency. Never mind the comparative loss of wealth to citizens in the developed world.
A classic argument for not joining the EU and improving the livelyhood of Iceland’s citizens.
Related posts:
- Thanks A Bucket – But Stiglitz Wants IMF Out Of Iceland
- Finance minister wants to abolish price-indexation
- UK Crackpot: McDonald’s flight shows Iceland’s policy works
Tags: Arsonist, Bucket Of Water, Citizens, Competitiveness, Crackpot, Currency, Developing World, Economic Collapse, Exorbitant Interest Rates, Finance Minister, Financial Sector, Hot Money, Iceland, Imf, Indexation, Inflation, Livelyhood, Mcdonald, Stiglitz
Posted in Iceland, Market | No Comments »
Sunday, February 14th, 2010
Exchange rate indexation of loans is illegal in Iceland and this also applies to domestic loans, according to a new court ruling that could have major consequences.
Exchange rate indexation of loans means that the total amount owed in Icelandic kronur varies according to its exchange rate against the currencies in which the loan was issued. Such loans were aggressively promoted by the Icelandic banks in previous years and have now left many diligent car and home owners with bigger debts than the original amount – despite paying their bills every month.
Now the Reykjavik District Court has ruled that such loans are illegal – a ruling which directly contradicts a ruling in the same court in December, RUV reported.
According to the legal precedent, courts may now start ordering that exchange rate indexed loans be turned into regular inflation indexed loans denominated in Icelandic kronur.
The whole issue rests on a slight loophole, as exchange rate indexation is indeed illegal; but it is not illegal to lend in foreign currencies and then secure repayments in those currencies or in Icelandic kronur. But it is illegal to lend in Icelandic kronur and secure repayments pegged to the exchange rate of foreign currencies.
Customers taking out ‘foreign currency loans’ in Icelandic banks to buy homes and cars in Iceland were given their money in Icelandic kronur. The court has now ruled that this was illegal.
Tags: Banks, Cars, Consequences, Currency Loans, Debts, Exchange Rate, Favour, Foreign Currencies, Foreign Currency, Foreign Exchange, Iceland, Indexation, Kronur, Legal Precedent, Loophole, Money, Previous Years, Repayments, Reykjavik, Ruv
Posted in Iceland | No Comments »
Wednesday, December 2nd, 2009
If the typical Icelander owns 1 million ISK in a bank account and loses 200.000 then he will experience it as if he’s lost that money.
If the typical Icelander owes 1 million ISK in his property and 200.000 is added to the capital because of price indexation and inflation then he will not experience it as a loss at all.
That is why people are not enraged about the price indexation still being in place.
That is why people are not in the streets protesting the protection given to savers but not debtors in the wake of the economic crash last year.
That is why you’ll hear people say ridiculous things as “The economic crisis has not affected me so much. I am only paying 5-20.000 extra a month than I did last year.”
If people got their head around the real effects of price indexation then they’d march on Althingi and burn down the banks if the price indexation would not be removed.
Until then, the Icelandic government does nothing to dismantle this weapon of mass financial destruction.
Tags: 1 Million, Althingi, Banks, Debtors, Economic Crash, Economic Crisis, Indexation, Inflation, Isk, Mass Destruction, Money
Posted in Iceland, Market | No Comments »
Saturday, November 28th, 2009
It is a strange feeling to witness your country falling apart before your eyes. You first start to panic when you realise that there is nothing you can do to stop the crash. When the crisis hit Iceland’s shores last year the rock of the Viking economy proved to be nothing more than clear water. Now we shall have to wait and see whether Dubai’s economy is built only on sand, or if a more solid base can be found to underpin its economy.
From the Guardian
Note: Will the legacy of the political and business elite which ruled Iceland in the past two decades be that the word Iceland becomes synonymous with economic disaster?
Note II: Eirikur Bergmann thinks that life is returning to normal. If normalcy is a dead housing market, price indexation, higher food prices, higher taxes, less government service, currency depletion, unemployment, corrupt banks, inept government and an almighty rift in society then he is right.
His column though seems to prove the lack of understanding within Icelandic academia on what was really going on in the financial sector before the economic collapse and a lack of understanding in economics in particular. To send the message abroad that everything is returning to normal is insulting to the people of Iceland.
Tags: Academia, Bergmann, Business Elite, Clear Water, Crash, Decades, Economic Collapse, Economic Disaster, Financial Sector, Food Prices, Government Service, Guardian, Housing Market, Indexation, Inept Government, New Iceland, Normalcy, People Of Iceland, Strange Feeling, Unemployment
Posted in Iceland, Market | No Comments »
Thursday, November 26th, 2009
The annual rate of inflation in Iceland has dropped to 8.6 percent in November, compared to 9.7 percent in October. This is the lowest it has been since autumn 2007; but still a long way from the Central Bank of Iceland’s targeted 2.5 percent.
Press release from Statistics Iceland: The CPI based on prices in November 2009 is 356.2 points (May 1988=100), 0.74% higher than in the previous month. The CPI less housing cost is 335.7 points, 0.96% higher than in October.
Prices of clothing and footwear rose by 3.4% (effect on the index 0.20%) and prices of petrol and diesel oil by 3.5% (0.17%). Prices of furnitures and furnishings increased by 4.2% (0.14%) and of groceries by 0.6% (0.10%) Airfares for international flights fell by 14.5% (-0.14%).
The CPI in November 2009 is 8.6% higher than in November 2008 while the CPI less housing cost is 12.5% higher than one year ago. Over the last three months, the CPI has increased by 2.7%, equivalent to an annual inflation rate of 11.2% (12.3% for the CPI less housing cost).
The CPI compiled in the middle of November 2009, 356.2 points, is applicable for indexation purposes in January 2010. The old credit terms index for January 2010 is 7,033 points.
Tags: Airfares, Annual Inflation Rate, Annual Rate Of Inflation, Autumn, Bank Of Iceland, Central Bank Of Iceland, Cpi, Diesel Oil, Footwear, Furnitures, Groceries, Indexation, Inflation Figures, International Flights, Petrol, Press Release, Rate Of Inflation, Statistics, Three Months
Posted in Iceland | No Comments »
Tuesday, September 29th, 2009
The customers of Íslandsbanki, formerly Glitnir, will soon be able to change their foreign currency mortgages to non-indexed mortgages in ISK, which will lower the capital by 25 percent. Debtors who have indexed mortgages in ISK can have the indexation removed and the capital lowered by ten percent.
Tags: Currency Mortgages, Debtors, Foreign Currency, Indexation, Isk, New Solution, Presents
Posted in Iceland | No Comments »
Friday, September 4th, 2009
I’ve thought a lot about theory economist Gudmundur Olafsson’s attempts to divert the public’s attention from the injustice of price-indexation of loans. He uses the analogy of when a man borrows ten horses from him, he expects ten horses back.
He makes no mention of the responsibility bestowed upon him as the lender to provide the borrower with healthy horses instead of limpering and diseased ones. If he fullfills that obligation then it is easy to return the ten horses. If not then the borrower is at a terribly unfair disadvantage.
In civilized societies, consumers are guaranteed the right to return faulty products in exchange for money back or products that work. Seeing the capital of a mortgage grow by 25% in three years, in spite of 25% of the original amount being paid onto it, indicates that the product is faulty, even dangerous.
It should be the right of consumers to return the product or at least get one that works.
Tags: Analogy, Civilized Societies, Consumers, Dead Horse, Economist, Faulty Products, Guaranteed Return, Horses, Indexation, Injustice, Loans, Money Back, Mortgage, Obligation, Olafsson, Spite
Posted in Iceland, Market | No Comments »
Monday, August 31st, 2009
My life and the life of so many of my friends has taken an extreme turn in the last year.
Now we can safely say with the benefit of hindsight that the economic collapse of Iceland has been a life-changing event for just about everyone.
Old truths have been demolished, new governments have been formed, old kings have been dethroned and so much planning has gone out the window.
As my girlfriend and I look at our mortgage as August melts into September we see it has grown 25% in the last three years. If it keeps growing the way it has since we signed on, it will have doubled in ten. Sixteen million owed to the bank will become thirty two with thirty years still running.
That is the beauty of price-indexation for you. The solution that has allowed every government in Iceland since the early eighties to stick their heads in the sand and neglect serious economic issues.
A friend who is 25 has been talking to her bank about solutions regarding her foreign currency mortgage. Starting with a loan around 45 million ISK, it is now above 100 million.
She said the last payment she made a year ago before getting it “frozen” was over 400.000 ISK. She said she felt stupid to pay it.
What sort of future can we expect to build in a country like this? She and her spouse have two options on the table, bankruptcy and moving abroad. Others, facing these kinds of problems as well as marital difficulties find it impossible to divorce.
Two out of three of our friends who lost their jobs last winter have gotten new ones. But they are working more, being paid less and now one is being let go again because of “restructuring” in his company. The third one is still looking.
Everyone is waiting. What is going to happen this winter?
I for one am going back to school. Tomorrow I will start studing for a master’s in International Relations at the University of Iceland’s Political Studies department. My reasoning for this new venture is to build towards a future where I can participate in warning people about the ills that have plagued Iceland. Meanwhile I will be coaching football to put some bread on the table and service the price-indexation beast.
I am continuously amazed by the number of visits to this site. I know I have had my ups and downs in maintaining it and keeping it updated but it is a labour of love and definitely provides no food for the monsters of price-indexation. There are a couple of good sites out there in English that are well-maintained. I encourage you to read them too. Check out IceNews, IWR, Iris at HuffPost, Iceland Review, Newsfrettir, IcelandTalks and the Grapevine.
Please continue to check in, there are many layers to the Iceland story and hopefully I can provide some insight without resorting to stories of “hardy bunch” and “nation of fishermen” and “fire and ice”. I have yet to tell the story of myself as a banker, and when the distance is appropriate where I can seperate between the blurry lines of recent memory then it will come.
The Vikings of Iceland exist only in our minds today. Although some people here act cool and others claim the elfs have told them to be kind to the earth and everything will be fine, we are in reality just a group of people who have been raped and plundered and are left insecure, hurt and confused.
I’m excited to be back at school. I recently asked myself when I’d been the happiest in life and the answer was in college so there I go. The combination of meeting new people and exploring ideas is irresistible and I’ll try to make sure my life revolves around being a “college student” from now on. And if I cannot pay my mortgage then it doesn’t matter, I did not sign up for this crap in which we Icelanders are in up to our knees and I will continue to meet it head on.
Tags: 100 Million, Bankruptcy, Economic Collapse, Economic Issues, Eighties, Foreign Currency, Girlfriend, Going Back To School, Governments, Hindsight, Indexation, International Relations, Last Winter, Marital Difficulties, Neglect, Old Kings, Restructuring, School Tomorrow, Thirty Years, University Of Iceland
Posted in Iceland, Market | No Comments »
Wednesday, July 29th, 2009
The CPI based on prices in July 2009 is 345.1 points (May 1988=100), 0.17% higher than in the previous month. The CPI less housing cost is 323.9 points, 0.56% higher than in June. The increase is lower than prediced by the IMF and Islandsbanki, but slightly higher than Landsbanki predicted.
Summer sales are widely underway, reducing prices of clothing and footwear by 7.3% (effect on the index -0.43%). Cost for owner occupied housing decreased by 2.6% (-0.35%), thereof the effect of lower market prices was -0.32% and of lower real interest rates -0.03%.
Prices of petrol and diesel oil rose by 4.8% (0.23%). Thereof the effect of increase in specific tax on petrol was 0.28%. Prices of furniture and furnishings increased by 4.7% (0.16%) and of new cars by 3.4% (0.12%).
The CPI in July 2009 is 11.3% higher than in July 2008 while the CPI less housing cost is 16.4% higher than one year ago. Over the last three months, the CPI has increased by 2.7%, equivalent to an annual inflation rate of 11.3% (16.7% for the CPI less housing cost).
The CPI compiled in the middle of July 2009, 345.1 points, is applicable for indexation purposes in September 2009. The old credit terms index for September 2009 is 6,814 points.
(Statistics Iceland press release, available at www.statice.is)
Tags: Annual Inflation Rate, Consumer Price Index, Cpi, Diesel Oil, Footwear, Furniture, Iceland, Imf, Indexation, Interest Rates, Islandsbanki, New Cars, Press Release, Statice, Statistics, Tax On Petrol, Three Months
Posted in Iceland | No Comments »
Wednesday, April 29th, 2009
The CPI based on prices in April 2009 is 336.0 points (May 1988=100), 0.45% higher than in the previous month. The CPI less housing cost is 311.6 points, 0.84% higher than in March.
Prices of petrol and diesel oil rose by 8.2% (effect on the index 0.33%) and prices of clothing and footwear increased by 3.2% (0.19%).
Cost for owner occupied housing declined 1.6% (-0.23%). Thereof the effect of lower market prices was -0.19% and of lower real interest rates -0.04%. Prices of food and beverages fell by 0.7% (-0.10%).
The CPI in April 2009 is 11.9% higher than in April 2008 while the CPI less housing cost is 15.6% higher than one year ago. Over the last three months, the CPI has increased 0.4%, equivalent to an annual inflation rate of 1.4% (9.4% for the CPI less housing cost).
The CPI compiled in the middle of April 2009, 336.0 points, is applicable for indexation purposes in June 2009. The old credit terms index for June 2009 is 6,634 points.
The consumer price index is now published on a new base, March 2009. The rebasing of the index is primarily built on Statistics Iceland’s household expenditure survey 2005–2007. Exceptions are made in cases where more recent information, from reliable sources, is available. These sources include data on new car registrations, data from providers of international flights and package holidays and data on VAT turnover in the retail market. The outlet weights used in the calculation of price changes of groceries in the CPI have been changed based on 2008 data. Changes in buying pattern resulted 0.12% lowering of the index in April. It should be pointed out that the rebasing of the index does othervise not have any price effects on the CPI. Expenditure shares according to the new and old base in March 2009 can be found here.
The changes of the index in the previous year will be further outlined in a separate issue of the Statistical Series to be published on 12 May 2009.
(Statistics Iceland)
Tags: Annual Inflation Rate, Car Registrations, Consumer Price Index, Cpi, Data Changes, Diesel Oil, Expenditure Shares, Food And Beverages, Footwear, Groceries, Household Expenditure Survey, Indexation, International Flights, Package Holidays, Petrol, Previous Year, Price Changes, Reliable Sources, Retail Market, Statistical Series
Posted in Iceland | No Comments »
