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Why should Iceland have to pay anything for the losses incurred by (i) greedy UK savers who were attracted by the extravagant interest rates on deposits offered, or (ii) the UK govenment in compensating said savers for their losses?

Either:

  1. the deposit accounts were properly regulated, in which case the UK government should pay up via its bank deposit protection scheme (ie the savers were right to go for the good offer, knowing that they were protected by their government as if going to any other UK bank);

  2. the deposit accounts were not regulated, this was made clear to savers, and they should thus take the losses for investing in a risky venture;

  3. the deposits were not regulated, this was not clear to savers: in that case, the government did not do its job properly and should be held responsible for it (and it's not obvious that the money should come from the deposit protection mechanism - it should probably come from general taxpayer funds).

I'd note that 3) includes the case where the UK government "naively" trusted Icelandic authorities to do the regulation while giving an explicit or implicit deposit guarantee to these accounts.

I see no case where Icelandic taxpayers should have to pay anything.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Aug 17th, 2009 at 05:39:37 AM EST

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