Everybody knows the underlying asset (such as a house) disappears poof when the financial instrument (such as the mortgage) goes sour. This leads to the unsettling experience of people waking up in the morning only to find their neighbor's house - and the neighbors - have disappeared overnight.
You might say the value of, say, France, is large enough to cover the debt of French banks - is that true of Iceland ? Un roi sans divertissement est un homme plein de misères
You might say the value of, say, France, is large enough to cover the debt of French banks - is that true of Iceland ?
Yes.
;-)
I mean ...
[Write and then delete long, convoluted, argument.]
Look, valuation leading to a judgement of the Wealth of Iceland utterly depends on the criteria one brings to the process. Is the Icelandic culture worth anything? The fishing grounds are worth something but that 'something' depends on the time horizon used in the Net Present Value calculations. What about the Value of the untapped hydro, wind, and thermo energy potential? And so on until boredom sets in.
In my opinion the "Wealth" of Iceland greatly exceeds the mere monetary debts contracted by a small number of Icelanders who used OPM to play financial games.
Look, valuation leading to a judgement of the Wealth of Iceland utterly depends on the criteria one brings to the process.
And not just Iceland.
Which is why property is going 'poof' - there's a little bit of a problem with insurance on loans guaranteed on property which is crashing in value. The property doesn't need to go 'poof' - it just needs to make a massive loss. Which it's well on its way towards.
There will still be some residual value, but like every other market over-reaction, momentum becomes more important than reality. Some people will still want homes, but how much is an empty foreclosed house worth if no one can get a loan for it?
Value isn't created by reality but by confidence and mutual trust in ability to pay. When trust disappears, value goes with it, even when the real economy still has real things for sale.
The rest is (creative) accounting.
So far the "creative accounting" has been on the financier's side. There isn't any reason it cannot be switched to the consumer's side.
...debts contracted by a small number of Icelanders who used OPM to play financial games.
Some of the 20 have in all probability been acting as nominees or agents for Russian money of varying degrees of cleanliness.
Norway is well aware of that, which is why they have been circumspect about exactly what form any assistance will take. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
Dick "It Wasn't My Fault" Fuld, the CEO of bankrupt investment bank Lehman Brothers, (seen here being heckled after testifying on Capitol Hill) was apparently punched in the face while working out in Lehman gym on the Sunday following the bankruptcy, according to CNBC's Vicki Ward.
