Video: Iceland's President: Let Banks Go Bankrupt

In the following video, Mr. Olafur Ragnar Grimsson Iceland’s president calls for banks to go bankrupt. (hat tip Mises Blog)

Interesting quips:

On the worship of the banking sector:

1:24 Why do you consider banks to be the holy churches of the modern economy?

On crony capitalism 

1:37 The theory that you have to bailout banks is the theory about bankers enjoying their own profit of success and let the ordinary people be the failure...

On how political redistribution from bailouts impacts the real economy

2:31 If you want your economy to be competitive in the innovative sector of the 21th century, a strong financial sector that takes the talent from these sectors, even a successful financial sector is in fact bad news, if you want your economy to be competitive in the areas which really are the 21st century areas Innovation Technology IT 

While virtues of bankruptcy is something to extol, I think Iceland bubble experience is unique, considering her rather small 300,000+ population. 

A smaller population could mean that vested interest groups may have lesser political influence, or perhaps, are easier to deal with compared to the more complex and hugely populated social democratic welfare states as Europe, Japan or the US where power blocs have been deeply entrenched and have significant following in the populace. 

But yes, let the banks fail.

Despite Bankruptcy Case, “Rich Dad, Poor Dad” Author Remains a RICH Dad

Popular author Robert Kiyosaki of “Rich Dad Poor Dad” fame seems under assault from mainstream media. While it has been true that Mr.Kiyosaki has indeed filed for bankruptcy, the guy has been insinuated as personally ‘bankrupt’.

[disclosure: I am no fan of Robert Kiyosaki. Mr. Kiyosaki was wrong about the real estate bubble in 2005. But has been right about the currency bubble and being bullish in precious metals. Nevertheless,  this terse commentary has been meant to put Mr. Kiyosaki’s case in perspective]

From ABS-CBN,

In an ironic twist, the author of the bestselling financial help book “Rich Dad Poor Dad,” Robert Kiyosaki, has filed for bankruptcy.

This after one of his companies lost a $24-million court judgment, according to a report from the New York Post.

“Kiyosaki’s Rich Global LLC filed for bankruptcy after being ordered to pay nearly $24 million to the Learning Annex and its founder and chairman, Bill Zanker,” the report said.

“US district judge Shira A. Scheindlin in April ordered Rich Global to pay up $23,687,957.21 after a jury ruled Kiyosaki must give the Learning Annex a percentage of his profits after using their platform for speaking engagements, including a 2002 gig at Madison Square Garden,” it added.

In reality, the reason behind Kiyosaki’s Rich Global LLC filing for bankruptcy has been about legal maneuvering

The same article quotes Mike Sullivan, chief executive officer of Kiyosaki’s Rich Dad Co as saying:

“Robert and [wife] Kim are not paying out of personal assets. We have a few million dollars in his company, but not 16 or 20. I can’t do anything about a $20-million judgment… We got hit for what we think is a completely outlandish figure.”

Mainstream media never explains this or at least gives an effort to make news objective or balanced.

Fundamentally, the case stems from charges of breach of contract by an aggrieved party whom was awarded in the court case.

From Business Insider,

But apparently the fame went to his head because according to court papers obtained by the Post, Kiyosaki, who published his first "Rich Dad" book in 1994, never paid the Annex its rightful share. Said founder and chairman Bill Zanker: "Oprah believed in him, and Will Smith believed in him, but he didn't keep his promise to us."

Yet Mr. Kiyosaki remains solvent in spite of the bankruptcy filing. Again from Business Insider:

Despite the blow to the personal finance guru's reputation, Kiyosaki probably won't feel the pinch in his wallet. Forbes pegs his net worth around a cool $80 million, and Kiyosaki, who's written 11 books, operates as many as ten other companies. Rich Global was said to be worth a few million when it went under.

Again, legal maneuvering from a bankruptcy procedure has been about the potential to discharge debts through the bankruptcy court.

According to bankrate.com, debts that are usually discharged from bankruptcy covers the following:

I think Mr. Kiyosaki’s decision to file for bankruptcy means that his case will fall under

Lawsuits and judgments: These result from creditors or collection agencies suing you for failing to pay. With few exceptions, you may eliminate the lawsuit even after it has begun or the judgment that results from the lawsuit.

So despite the bankruptcy proceedings and the implied media slur, Mr. Kiyosaki remains a RICH Dad!!! This serves as one neat example of why you shouldn't trust the mainstream media.

A Tale of Riches to Rags: The Bankruptcy of Former Irish Billionaire Sean Quinn

From BusinessWeek/Bloomberg:

Sean Quinn, once Ireland’s richest man, was declared bankrupt after losing more than one billion euros ($1.3 billion) investing in Anglo Irish Bank Corp.

Judge Elizabeth Dunne ruled on the bankruptcy in Ireland’s High Court in Dublin today. Quinn didn’t contest the bankruptcy petition brought by Irish Bank Resolution Corp., formerly Anglo Irish Bank.

The IBRC estimates that Quinn, whose fortune was valued at around $6 billion by Forbes magazine in 2008, owes the bank almost 2.9 billion euros. The lender in April appointed a share receiver to take over the Quinn family’s equity interest in Quinn Group, a conglomerate whose businesses included building materials, insurance and real estate.

We would see many bankruptcies by rich bankers when governments stop supporting them. But this isn’t likely to happen anytime soon as the welfare state will continue with its laborious efforts to preserve the current system.

And this can be seen with many "too big to fail" banks in the EU, continuing to receive massive support from their governments via the ECB.

Wikileaks Exposé: Eurozone Needs a Bankruptcy Option

Wikileaks intercepted and posted on the web a cable sent by the Berlin by the US ambassador to Germany, Philip Murphy, to the Treasury Department and the State Department, on February 12, 2010 citing a Chapter 11 for Eurozone countries

From Bob Wenzel, (bold emphasis mine)

In part the cable reads:

“A EUROZONE CHAPTER 11: DB [Deustche Bank] Chief Economist Thomas Mayer told Ambassador Murphy he was pessimistic Greece would take the difficult steps needed to put its house in order. A worst case scenario, says Mayer, could be that Germany pulls out of the Eurozone altogether in 20 years time. In 1990, Germany's Constitutional Court ruled that the country could withdraw from the Euro if: 1) the currency union became an "inflationary zone," or 2) the German taxpayer became the Eurozone's "de facto bailout provider." Mayer proposes a "Chapter 11 for Eurozone countries," which would place troubled members under economic supervision until they put their house in order. Unfortunately, there is no serious discussion of this underway, he lamented.”

The cable outlines the concern German officials have with using German taxpayer money to bailout Greece and other financially weak Eurozone members. The cable in many ways explains Germany's recent foot dragging on getting a bailout deal done, since a completed deal will mean either funding by German taxpayers or European Central Bank money printing. Here's more from the cable:

“Chancellor Angela Merkel's government welcomed the decision taken at the EU's February 11 [2010] informal summit in Brussels not to provide financial assistance, for the moment, to cash-strapped Greece. German officials believe a bailout is not needed at this time, and that extending a lifeline to Greece would have carried too many risks. One major fear in Germany is that "saving" Greece would lead to other needy Eurozone members expecting the same treatment...Prior to the February 11 EU Summit in Brussels, there was much hair pulling in Berlin over the wisdom of participating in some sort of Greek rescue. No one savored the idea of explaining to German taxpayers, already concerned about Germany's record deficit, that they would be footing the bill for the irresponsible behavior of another country. A Finance Ministry official explained to us that many Germans felt disgusted by the situation in Greece: "While Germans have spent the past decade tightening their belts and improving their competitiveness, Greek civil servants still earn 14 months' salary per year." A recent editorial in the German daily Frankfurter Allgemeine Zeitung (FAZ) asked rhetorically whether Germans would need to work until age 69 just to finance early retirement for Greek workers. With important upcoming elections in the state of North Rhine-Westphalia, bailing out Greece would not be a vote winner...The German government was, in fact, "relieved" that the European Council meeting on February 11 decided not to put concrete assistance on the table at this time...”

But here's more from the cable, which explains why Germany even cares what happens to Greece

“Chancellor Merkel is clearly relieved she does not, for now, have to explain to the public why the German government is running up its own deficit to bail out debt-laden Greece. Still, the German government appears prepared to step in as a last resort if needed and is cognizant that German banks (such as Hypo Real Estate and Deutsche Bank) and insurance companies (Allianz) have significant exposure to Greek sovereign debt.”

In other words, it's all about the damn banksters.

Read the rest here

Incidentally, Deutsche Bank Chief Economist Thomas Mayer who proposed “Chapter 11 for Eurozone countries” or the Eurozone’s bankruptcy option recently wrote about the revival of Austrian economics (bold original from my earlier post)

Therefore we need to dump the flat-earth theories promising that economic and financial outcomes can be planned with a high degree of certainty and need to look at other theories that accept the limits of our knowledge about the future. A revival of Austrian economics could be a good start for such a research programme.

Could it be that the influence of Austrian economics has begun to permeate into policymaking?