…Richard points to recent events in Iceland as another successful application of Sweden’s model. There, the country’s banks forgave loans equivalent to 13% of gross domestic product, according to a Bloomberg article Richard cites. The equivalent in the United States would be about $1.95 trillion of mortgage debt writedowns. Icelandic banks agreed to forgive all mortgage debt over 110% of a home’s value.
Not only that, Bloomberg relates a development that would meet, I believe, with the approval of Tea Party members and Occupy protesters alike: Bankers were held personally liable for crashing the country’s economy. The CEO’s of the country’s three largest banks are among 200 who are facing criminal charges, and a special prosecutor expects up to 90 more indictments. The contrast with the United States could not be more obvious.
While Iceland is a tiny country with a population of only 317,000 and a $13 billion GDP, Trust Your Instincts is not the only blog paying attention to it. As Paul Krugman wrote yesterday, “I think I may have been one of the first commentators with a wide audience to point out how relatively well Iceland was doing….
“The moral of the story is that a different approach to dealing with the banks is necessary, both to restore the U.S. economy but to prosecute financiers who broke the law. As it stands, bankers have gotten off scot-free while the country’s economic growth has been largely anemic. While the job market has shown a few flickers of life recently, the country needs millions of jobs just to get back where it was before the crash, which actually wasn’t all that good a situation for the middle class to begin with.