Irvine Housing Blog

Gingrich Said to Be Paid $1.6M by Freddie Mac

http://www.bloomberg.com/news/2011-11-16/gingrich-said-to-be-paid-at-least-1-6-million-by-freddie-mac.html

According to the IMF by way of Wikipedia, Iceland’s GDP in 2010 was $12.6 billion.  The US’s GDP was $14,526.6 billion. So that is 0.087% of the US economy. 

What is the GDP of Orange County?

Krugman’s article mentions that their 3 biggest banks failed… So far in 2011 the FDIC closed 88 banks in the US.

I’d be wary of drawing too big of a conclusion based on Iceland’s experience.

And while their tax payers avoided being stuck with a lot of the bill… The IMF did pony up 2.5 Billion.

GDP of Iceland $12.6 Billion
GDP of US   $14,526.6 Billion

Iceland economy is roughly 0.087% the size of the US’s

Krugman mentions that 3 of their biggest banks failed.  In 2011, the FDIC
has closed 88 banks.

I’d be wary of extrapolating too much from that comparison.

And while the Icelandic tax payers did not have to fund the bailout, the
IMF did kick in a $2.5 billion bailout package.  I don’t think the US
could expect a proportional response from the IMF.

What is the “GDP” of Orange County vs Iceland?  Population of Iceland is roughly 317,000. (2010) Population of Orange County is 3,010,000 (2008)

According to Michael Lewis’s recently released book “Boomerang”, “flyover” is correct…
Population of Iceland is about 300,000 folks
About the size of Peoria, Illinois
Nearly only economy is based on fishing
Suffered $100 Billion in banking losses + tens of billions of $‘s in personal losses

How did this happen?  Fishermen began speculating on foreign currency.  Much easier money than fishing in the cold north Atlantic.  They borrowed yen and Swiss francs, paid 3% on the yen and made a bundle against the krona.  It built, and built.  Now many young Icelanders own $500,000 houses with $1.5 million mortgages, $35,000 Range Rovers with $100,000 in loans against them.  The problem was that their outrageous speculation not only involved their banks, but lots of European banks as well.

I don’t think comparing the US Economy to Iceland’s Economy to be fair….

Not sure the same methods would work in Iceland as the U.S.  No country is dependent on Iceland…

The world DEPENDS on the U.S. to be a functioning non-bankrupt economy… If the US let the big banks fail… The Big Banks might have taken down the world..

At the very least… The Big Banks could have shut off all ATMs for a week or so…

Can’t totally blame the government.. They were literally held hostage by the big banks.  It was economic terrorism.. and the US negotiated with the terrorists.

Whether than was good or not.. who knows… Many people might have died had they not negotiated.

“Iceland”....doesn’t the World depend on European banks?  Not US Banks….Oh, for sure, US Banks are completely involved in world banking…but it is events in Europe that are making our stock market look like the Rocky Mountains.

Couple of points:

1)  Yes, Iceland’s 3 big banks went belly up.  But foreign banks are still trying to get Iceland to pay up as much as possible.  This story is nowhere near over.

2)  I live in San Diego, and I’m starting to see home prices actually creep up a bit here.  Very surprising.  I’m assuming this is because the inventory seems lower than before, and also interest rates are very low.

3)  I swear there’s money coming into the system from somewhere.  I don’t know if Operation Twist is actually effective, or whether the US economy is actually gaining traction, or someone is just printing or lending or what.  We have Europe in a mess and Asia slowing down.  And yet oil broke through $100 today, US markets are within a whisker of recent highs, the shopping malls are full, and headhunters are calling.  Something’s going on, but I don’t know what it is.

San Diego County has a bit of a hedge against overbuilding by limiting building permits annually.  I could be wrong, but I don’t think the RE market there saw the peaks of pricing, or the depths that Orange County has seen.

IR
You failed to consider the underlying CDS credit default swaps measured in Trillions that would have come due if the market was allowed to collapse. AIG alone would have defaulted on about 2 trillion in CDS Insurance. The Total CDS exposure at that time was about 50 Trillion.
You want ugly ?
Be careful for what you wish for. It may come true. And Real Estate will be a giant ZERO overnight. People will just be trying to eat.

Iceland does not seem a very good analogy to the failures here in our banking system either.
Iceland = Mice nuts.

Great post!

bltserv..if memory serves, Michael Lewis’ book “The Big Bet” discussed CDS’s in the billions..single billions..as a bit bet. Is there a breakdown anywhere on the 50 trillion? I think that I heard Paul Volker mention 30 trillion. It’s hard to imagine who made those bets..

So - Iceland’s bank depositors who were foreigners (ex. British) got the shaft when the banks went belly up.

US depositors (ex. Treasury holders like the Chinese) also getting the shaft as the Fed prints money and the US dollars dips making the Treasuries less valuable.  The printed money bails out the US bank depositors (US citizen) but messes up the foreigners.

How is the US not like Iceland again?

How Household Debt Contributes to Unemployment: Mian and Sufi
http://www.bloomberg.com/news/2011-11-17/how-household-debt-contributes-to-job-cuts-commentary-by-mian-and-sufi.html

Iceland could not backstop its banks - way too big for the domestic economy to support.  It was wise not to try - but since they couldn’t anyway, not as meritorious as it might appear.  But as mentioned above they went a step further and defaulted on deposit insurance commitments made as part of Iceland’s EEA (note EU) treaty obligations.  These were enacted into national law many years prior to these events.  Icelanders are fiercely proud of their democratic traditions, but in this matter they like to pretend that they never actually meant to offer such insurance.  200 years ago, Reykjavik would have been blasted to rubble by the Royal Navy over this, so I guess you can say humanity is progressing.