Iceland faced a bank collapse and their action was different than the U.S. reaction to the same problem. They threw the bankers in jail.
When the banking induced “Great Recession of ’08” struck, Iceland’s economic hit was among the hardest. However, instead of rewarding fraudulent banking procedures with tons of bailout money, they took a different path.
Prior to the recession, Iceland had one of the more thriving economies in the world, in spite of the fact that their total population (327,000) wouldn’t even fill a mid-sized American city. When the recession struck, they were among the earliest and hardest hit. However, instead of running to the vaults to shower the banks with money, they let the banks fail. They also resisted traveling down the European/Republican austerity road. Instead, they kept their social programs intact at a time when they were most needed.
And, they sent fraudulent bankers to jail.
When Iceland’s three major banks collapsed, it resulted in defaults totaling $114 billion in a country with a gross domestic product (GDP) of only $19 billion. In October, 2008 the parliament passed emergency legislation to take over the domestic operations of the major banks and established new banks to handle them. They did not, however, take over any of the foreign assets or obligations. Those stayed with the original banks, right into bankruptcy.
In the U.S.?
That’s only part of the story.
The real reason zero bankers went to jail in the U.S. is because they had an affirmative defense. They followed the law, which was written by the likes of Barney Frank and expanded and enforced by the Clintons. It’s called the Community Redevelopment Act and it forced banks to make loans to people with not just poor credit, but really lousy credit. Banks found a way, they thought, to comply with the law, but that which can’t continue won’t.
In fact, it wasn’t the bankers who deserved jail (they didn’t deserve a bail out either) it was the politicians who created the regulatory nightmare that forced banks to make bad loans.
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