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Iceland let its banks fail and protected the taxpayers, and a few years later the economy recovered just fine. It's at a much smaller scale than the US or EU ec

Iceland let its banks fail and protected the taxpayers, and a few years later the economy recovered just fine. It's at a much smaller scale than the US or EU economy though, but still.

Tyrek 9y ago
It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. It's well documented that cause/effect differs as your economy scales (just look at how behavior changes between a small startup vs a unicorn). While there might be some valid arguments for letting the banks fall, 'someone else did it and it worked' is not one of them.
- nugget 9y ago
  Humans and their systems are very resilient. Personally I would have let a lot of the weaker US financial institutions fail after Lehman. It would have been much more painful in the short term, but I bet we'd be in a healthier recovery period now. Granted I understand why the Fed did what they did. The European equivalent is letting Portugal, Greece, Italy, and Spain go bankrupt, which could cause serious, irreversible structural problems...on that one, I'm not sure what I would have done.
- notahacker 9y ago
  Yeah, Iceland couldn't have pumped in enough money to keep the banks solvent because of the size of their balance sheets relative to its economy but they still made comparably significant interventions to protect domestic creditors.
- jessaustin 9y ago
  It's unfair to compare the differing results of different national policies? What other option do we have? Should we just swallow the whole bill of goods that Hank Paulson drops on our desk, the same way that Bush the Lesser did? You probably don't think we should look to e.g. Portugal to see alternatives to the drug war, either. It's a funny sort of exceptionalism, to imagine that we can only learn from similar-sized nations. Would that be Brazil and Indonesia?
  - Tyrek 9y ago
    That's the whole basis of social science. As much as HN shits on social science for being unverifiable, the entire point of the domain is that some things (namely, economic understanding) are not verifiable through observation and comparison. The only way to really understand potential impacts are through economic concepts and modelling. Sure, there is plenty of bias thrown in, but there's also a million different economic models to choose from. There's a lot of noise, and it actually takes specialized knowledge and domain expertise to wade through all of it. I don't get why there's the misapprehension that economics is inherently intuitive.
    - jessaustin 9y ago
      The social science you're describing is not the same as that I learned at university. Maybe it doesn't often admit experimentation, but it sure as hell uses observation and comparison. In fact you're sort of insulting economists here, implying that they practice a sort of solipsistic philosophy. Lots of them really deserve it, but still! The secret unacknowledged religious dogma you might not even know you've swallowed (although golly are Goldman glad you did!) is the proposition that banks are difficult to replace. This notion is preposterous on its face (which is why no one ever says it out loud) because of course anyone who owns capital is quite capable of purchasing financial instruments with that capital. If they weren't, they wouldn't own it in the first place. In the absence of "bailouts", there might have been some temporary confusion as legitimate profitable uses of capital switched from the old banks to the new (and presumably as the new bankers upgraded their executive suites to the level of opulence required in their new positions), but the history of recessions in 19thC USA makes clear that when we just let weak banks fail, the economy quickly recovers.
      - Tyrek 9y ago
        Sure - you use observation and comparison to validate against your existing models, not directly against other countries. To apply the model to other countries, you have to tweak your model for additional factors that vary between the countries. It's preposterous to assume that you can straight up draw a conclusion from Iceland and apply it to, say, China. 19th C banks are wholly different creatures to what we have today - we weren't even on fiat currency in the 19th Century, much less using banks as extension of monetary policy. The entire point of defending banks is that there is an immense amount of built up regulations that would not transfer over to the 'new banking system'. And while it's debatably whether or not existing regulations are good, the current regulatory environment makes it unlikely that any sort of similar consumer protection would be re-built in this day and age - just look at the modern ICO, which is wholly built on smoke and mirrors.
- laurent123456 9y ago
  It's not the same but it shows it can be done, that letting the banks fail doesn't necessarily translate to economic collapse. If the Iceland economy had collapsed there would be a case that bailing out the banks was the right decision, but as it is there's no clear proof. Bailing them out lead to all kind of problems too. 8 years later the economy hasn't quite recovered, and in the meantime the lack of trust caused by all this gave us Trump, Brexit, etc. I guess we can't really know what would have happened if these banks had failed, but the alternative is definitely not great.
- eli_gottlieb 9y ago
  >It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. A "premier" position based on bullshit ain't so premier.
jcranmer 9y ago
Iceland effectively did bail its banks out, but only bailed them out for domestic depositors and screwing foreign creditors and depositors, which had severe foreign policy effects on Iceland.
- jessaustin 9y ago
  More severe than electing the current USA president? "Foreign policy effects" actually are size-dependent.

Iceland let its banks fail and protected the taxpayers, and a few years later the economy recovered just fine. It's at a much smaller scale than the US or EU economy though, but still.

Tyrek 9y ago

It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. It's well documented that cause/effect differs as your economy scales (just look at how behavior changes between a small startup vs a unicorn). While there might be some valid arguments for letting the banks fall, 'someone else did it and it worked' is not one of them.

nugget 9y ago
Humans and their systems are very resilient. Personally I would have let a lot of the weaker US financial institutions fail after Lehman. It would have been much more painful in the short term, but I bet we'd be in a healthier recovery period now. Granted I understand why the Fed did what they did. The European equivalent is letting Portugal, Greece, Italy, and Spain go bankrupt, which could cause serious, irreversible structural problems...on that one, I'm not sure what I would have done.
notahacker 9y ago
Yeah, Iceland couldn't have pumped in enough money to keep the banks solvent because of the size of their balance sheets relative to its economy but they still made comparably significant interventions to protect domestic creditors.
jessaustin 9y ago
It's unfair to compare the differing results of different national policies? What other option do we have? Should we just swallow the whole bill of goods that Hank Paulson drops on our desk, the same way that Bush the Lesser did? You probably don't think we should look to e.g. Portugal to see alternatives to the drug war, either. It's a funny sort of exceptionalism, to imagine that we can only learn from similar-sized nations. Would that be Brazil and Indonesia?
- Tyrek 9y ago
  That's the whole basis of social science. As much as HN shits on social science for being unverifiable, the entire point of the domain is that some things (namely, economic understanding) are not verifiable through observation and comparison. The only way to really understand potential impacts are through economic concepts and modelling. Sure, there is plenty of bias thrown in, but there's also a million different economic models to choose from. There's a lot of noise, and it actually takes specialized knowledge and domain expertise to wade through all of it. I don't get why there's the misapprehension that economics is inherently intuitive.
  - jessaustin 9y ago
    The social science you're describing is not the same as that I learned at university. Maybe it doesn't often admit experimentation, but it sure as hell uses observation and comparison. In fact you're sort of insulting economists here, implying that they practice a sort of solipsistic philosophy. Lots of them really deserve it, but still! The secret unacknowledged religious dogma you might not even know you've swallowed (although golly are Goldman glad you did!) is the proposition that banks are difficult to replace. This notion is preposterous on its face (which is why no one ever says it out loud) because of course anyone who owns capital is quite capable of purchasing financial instruments with that capital. If they weren't, they wouldn't own it in the first place. In the absence of "bailouts", there might have been some temporary confusion as legitimate profitable uses of capital switched from the old banks to the new (and presumably as the new bankers upgraded their executive suites to the level of opulence required in their new positions), but the history of recessions in 19thC USA makes clear that when we just let weak banks fail, the economy quickly recovers.
    - Tyrek 9y ago
      Sure - you use observation and comparison to validate against your existing models, not directly against other countries. To apply the model to other countries, you have to tweak your model for additional factors that vary between the countries. It's preposterous to assume that you can straight up draw a conclusion from Iceland and apply it to, say, China. 19th C banks are wholly different creatures to what we have today - we weren't even on fiat currency in the 19th Century, much less using banks as extension of monetary policy. The entire point of defending banks is that there is an immense amount of built up regulations that would not transfer over to the 'new banking system'. And while it's debatably whether or not existing regulations are good, the current regulatory environment makes it unlikely that any sort of similar consumer protection would be re-built in this day and age - just look at the modern ICO, which is wholly built on smoke and mirrors.
laurent123456 9y ago
It's not the same but it shows it can be done, that letting the banks fail doesn't necessarily translate to economic collapse. If the Iceland economy had collapsed there would be a case that bailing out the banks was the right decision, but as it is there's no clear proof. Bailing them out lead to all kind of problems too. 8 years later the economy hasn't quite recovered, and in the meantime the lack of trust caused by all this gave us Trump, Brexit, etc. I guess we can't really know what would have happened if these banks had failed, but the alternative is definitely not great.
eli_gottlieb 9y ago
>It's entirely unfair to use 'but still' as any sort of argument here. Iceland is not a large chunk of the world economy, nor does it have a premier position as the world's economic nexus to protect. A "premier" position based on bullshit ain't so premier.

jcranmer 9y ago

Iceland effectively did bail its banks out, but only bailed them out for domestic depositors and screwing foreign creditors and depositors, which had severe foreign policy effects on Iceland.

jessaustin 9y ago
More severe than electing the current USA president? "Foreign policy effects" actually are size-dependent.