Mon Oct 6th, 2008 at 03:17:15 AM EST
Compare the following two stories.
Bloomberg: Glitnir Plummets After Bailout; Byr Cancels Talks (September 30 2008)
Glitnir Bank hf, the Icelandic bank bailed out by the government yesterday, plunged the most in eight years as trading resumed in Reykjavik. Byr Savings Bank canceled talks with the lender about a possible merger.
The Guardian: The party's over for Iceland, the island that tried to buy the world
(Sunday October 5 2008)
People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.
I can understand a government rescue to avoid a bank run, but there's no talk anywhere of a government rescue of that food importer, in a country which is greatly dependent on food imports to feed its population.
If banks can't roll over their loans in the international money markets Icelanders won't be able to get credit, so the government intervenes. But if supermarket chains can't roll over their loans in the international money markets the Icelanders won't be able to eat and the government does nothing.
What does that tell us about government priorities?
Update [2008-10-7 5:37:35 by Migeru]: It appears that the Icelandic government is doing the right thing in relation to its banks. This from The Guardian [UK] (via a comment by vbo):
In an address broadcast on Icelandic television, prime minister Geir Haarde said the bill, supported by opposition parties, would allow the government to push through mergers between the battered Icelandic banks or force them to declare bankruptcy.
..."As recently as last night, it looked like the banks could continue operations for a while," he said. "This morning and today, things have totally changed for the worse."
...The emergency bill, which parliament was due to adopt last night, would also allow the government to take over housing loans held by the banks and put them in a government housing fund.
I don't think they will let food imports stop either, but if they run out of reserves they might be in a pinch.