HERALD HAS THE FINANCIAL STORY OF THE WEEK

We missed it today - we normally get the Herald in hard copy but it was sold out in the dairy so we did not see Fran Sullivan's sobering article..

Thanks to QB at the Hive we have now

The dark clouds of financial upheaval are on the horizon but it looks like our politicians are looking the other way. Our banks are not as safe as we have been led to believe.

It is hard to believe that Cullen and Clark would leave the country teetering on the brink of financial collapse just so they can go in a couple of days before the election and save the day but that's what Fran is implying.

Bollard has the ability to step up and tell the country what needs to be done rather that Clark and Cullen telling him what they want done.


Read the Hive Here - for a good summary

and Fran's Column is here its mandatory reading


and re read these two Roarprawn posts as well

NZ one of thirteen most at risk countries

and

Iceland Melts

NZ ONE OF 13 MOST " AT RISK" COUNTRIES FROM GLOBAL CREDIT CRISIS

We have been posting on the Iceland issue a lot - ( thanks to the Sweeper) and it seems we were on the money again - We should be watching what happens on the big Popsicle in the North very carefully.

New Zealand is among 13 nations named by BusinessWeek as most at risk from the global financial crisis.

The article compared New Zealand to Iceland because of its heavy dependence on foreign money to fund its current account deficit.

"Like Iceland, New Zealand was a favourite of investors playing the yen carry trade. And like Iceland New Zealand is hurting," the American magazine said on its website.

BusinessWeek compares Iceland with NZin the Herald

ICELAND MELTS

No doubt Justin Allen who used to have a heavy interest in EU politics will be interested in what is happening in Iceland.

The Sweeper says with the cash leaving the country as the carry trades unwind and the Japanese and Chinese take their funds home to safety against yield and interest, it could be an interesting time for the government as a lot of the carry trade money is in Govt bonds over 2 and 3 years.


This from the Guardian

The financial meltdown in Iceland continued this morning when Kaupthing became the third bank to fall into the hands of the authorities.Kaupthing was forced to turn to the country's financial watchdog after the evaporation of confidence in the Icelandic economy left it unable to keep operating as a private company.The collapse of Iceland's biggest bank comes just days after Glitnir and Landsbanki were also nationalised. Virtually the entire Icelandic banking sector is now under state control.The board of Kaupthing has resigned, handing control of the bank to Iceland's Financial Supervisory Authority. The regulator has said that branches will be open for business, with domestic deposits fully guaranteed.Iceland's whole economy appears on the verge of breakdown, with debts 12 times larger than its GDP. Its stock exchange was today shut down until Monday, due to the "unusual market conditions". Three days ago trading in financial firms was stopped.But Sigurdur Einarsson, executive chairman of Kaupthing, claimed that the company had been performing well just two weeks ago, before the first reports of problems at Glitnir sparked panic."Credit rating agencies downgraded their credit ratings for the Icelandic state and the Icelandic banks, and foreign investors unleashed a landslide in which they tried to get rid of Icelandic assets, regardless of how solid they were," he said.Einarsson also appeared to lay some of the blame on the UK, claiming that the panic over Landsbanki's Icesave deposit scheme had led to a flood of funds out of Kaupthing Edge, his bank's UK offering.Kaupthing's British operations were placed in administration yesterday by the UK's Financial Services Authority. Its £3bn of deposits were swiftly sold to ING, leaving hundreds of staff fearing for their future.The crisis at Kaupthing has also forced property tycoon Robert Tchenguiz to sell major stakes in J Sainsbury and Mitchells & Butlers, Britain's largest pub operator, leaving the billionaire nursing losses estimated to exceed to more than £800m.
Yesterday Gordon Brown said that the UK government will compensate individual savers with Icesave, and vowed to take legal action against Iceland to recoup any losses. Unlike Icesave, Kaupthing's UK accounts were already covered by Britain's banking guarantee.But up to 20 UK councils who banked with Icesave could lose millions of pounds because wholesale deposits are not protected.

UK GOVT STEPS IN AND SAVES THE ARSES OF ICESAVE DEPOSITORS

The Sweeper is keeping an eye on this fascinating yarn from the Guardian.

Icesave: Savers' money has been guaranteed by the UK government.

Savers with the internet bank Icesave will not lose a penny of their money even if it does fall into insolvency, the government said today."The government will guarantee that no retail depositor will lose money as a result of Icesave's collapse," a Treasury spokesman said. "Their money is safe and secure."The spokesman confirmed that the guarantee extended beyond the UK's Financial Services Compensation Scheme (FSCS), which protects up to £50,000 of savers' cash.An estimated 15,000 of Icesave's 300,000 savers have more than that sum invested, and some feared they could lose many thousands of pounds when the bank halted withdrawals yesterday after its parent company Landsbanki was nationalised by the Icelandic government.The chancellor will make a statement confirming the guarantee later today.Although Icesave savers will have 100% of their deposits covered, the Treasury said there were no plans to formally remove the limit on compensation from its current level of £50,000.Earlier, the prime minister, Gordon Brown, said the government would be taking legal action against the Icelandic government to recover any money lost by UK savers.

300,000 BRITS HAVE THEIR MONEY FROZEN IN ICELAND

The Sweeper alerted us to this in the Guardian

Its the Q and A advice for UK punters with money in the Icelandic bank.

Note that this is affecting 300,000 savers in Britain....




What has gone wrong?

The UK's Financial Services Authority (FSA) says it expects the Icelandic authorities to put Landsbanki into insolvency proceedings after it went into receivership this morning. More than 300,000 savers with its UK banking arms Icesave and Heritable Bank could be left seeking compensation. Currently Icesave has a message on its website telling consumers that it is not processing any deposits or any withdrawal requests on its internet accounts. The company is not giving out any information beyond this.Heritable Bank is also not allowing any new deposits or withdrawals.

What happens to my money if insolvency proceedings are started?
If insolvency proceeding are started this would trigger payouts from depositor protection schemes. Up to £50,000 of each saver's money would be protected through a combination of the Icelandic deposit compensation scheme and the UK's Financial Services Compensation Scheme (FSCS).The Icelandic scheme would pay out the first €20,887 (£16,170) that people lost. If for some reason it was unable to do this, it has a reciprocal agreement with other Nordic countries who would step in.The UK scheme would then top-up savers' compensation to the £50,000 limit for sole accounts and £100,000 for joint ones.The European Union today agreed to increase the compensation limit for EU countries to 50,000 euro (£38,900), but it is not yet clear if the higher limit would also include Iceland.

How long would it take to get my money back?

It is difficult to say, but it is thought the Icelandic scheme would be able to pay out relatively quickly as it is partially pre-funded.In the UK, the FSCS has said it would pay compensation as quickly as possible, but it could take months rather than weeks. A consultation is currently under way looking at getting the scheme to return the bulk of consumers' money to them within a week.

What happens if I have more than £50,000 invested?

Unfortunately, sums above this amount are not covered by the compensation schemes and you would have to join the queue with other creditors.


More here

LESSONS IN ICELANDS FINANCIAL DEMISE?

An old friend who has been watching Roarprawn with interest reckons that New Zealand and Iceland economies have a lot in common.

The Sweeper sent this in from the Guardian

The Icelandic government last night presented an emergency bill giving it sweeping powers over the nation's banks, to save the country from financial ruin.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 banks or force them into bankruptcy.

The fate of Iceland, which has extensive interests in the UK, has been seen as a warning sign for the rest of the world, after a long boom fuelled by debt, a dependence on its banking industry and a buoyant housing market. Haarde, who had spent the weekend in intensive talks, made it clear how urgent the need for action now was. "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." Time appeared to be running out for Iceland to deliver a solution to the financial crisis yesterday as its currency, the krona, slumped 30% against the euro.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. The financial regulator had earlier suspended shares in Iceland's main banks to prevent panic selling.

The government also followed Ireland and Germany by guaranteeing all domestic deposits in Icelandic savings accounts, although UK savers in the popular Icesave and Kaupthing Edge accounts run by the Icelandic banks will not be covered. Concerns about the Icelandic economy grew stronger last week after the government seized control of the third largest bank Glitnir, taking a 75% stake in return for €600m (£466m) - Haarde warning Icelanders at the time of "the inevitable cut in living standards" to come.The falling currency, which closed at a record low of 230 Icelandic krona per euro, is worsening the crisis for the banks, which are shouldering large overseas debts, and for many thousands of individuals in Iceland who were encouraged to take out loans in foreign currencies.

In Iceland, there was widespread fear. Sigridur Dögg Audunsdottir, a local government worker in Reykjavik said everyone in the country was "holding their breath". She yesterday withdrew her cash from the bank, all the way to her overdraft limit, to make sure her family had enough to live on. "It is just unimaginable. It is so dark and gloomy, we have never experienced anything like this. I took out my money just to be safe, because I felt I had to do something. We've all been living ahead of ourselves, so in many ways this was inevitable.

People here have been so obsessed with money. Iceland is like a nouveau riche country."A collapse in Iceland would severely dent confidence in the broader financial markets. But it also has the potential for direct impact in Britain, with the main banks funding a string of companies and high rolling entrepreneurs including Robert Tchenguiz, a large investor in Sainsbury's, chef Gordon Ramsay, the property tycoons Candy brothers and the chairman of West Ham Football Club, Bjorgolfur Gudmundsson......

Richard Portes, an expert on Iceland at the London Business School, said the government had made a mistake by nationalising Glitnir and creating fear in the markets, instead of just providing it with liquidity.

"You have the same law of unintended consequences that you had in the case of Lehman Brothers," he said. "The Iceland problem was immediately vastly exaggerated." He said the Icelandic banks had been unfairly targeted. "The world is a little unjust. They don't hold any toxic papers. The assets they will have to sell are perfectly good assets. They have been prudently managed and haven't been excessively dependent on the wholesale money markets compared to anyone else."

Iceland has undergone a remarkable transformation in the past couple of decades, from an economy largely based on fishing to one of the richest in Europe, driven by its biggest banks after deregulation of the banking system. The banks grew rapidly on borrowing and now have assets eight times Iceland's GDP. But the party has come to an end, with the krona losing more than half its value against the euro in the past 12 months, inflation at 12%, and interest rates of 15.5%.