Should I Pay For Bankers' Mistakes?

March 24, 2011

Baldur Hedinsson

Jeremy O'Donnell

This post was written by Planet Money intern Baldur Hedinsson.

I'm facing an economic dilemma, and I want your advice.

I'm from Iceland. On April 9th, my country is holding a referendum to decide whether to pay back the $5 billion one of our bankrupt banks owes to people in the Netherlands and the U.K.

How should I vote?

(This is not a rhetorical question! Cast your online vote at the bottom of this post.)

Here's the background.

During the boom, lots of Europeans opened online savings accounts with a big Icelandic bank called Landsbanki. When things fell apart in 2008, Landsbanki went bankrupt.

Officials in the Netherlands and the U.K. decided to reimburse their citizens who saw their Landsbanki savings accounts wiped out. In all, the governments paid back about $5 billion in deposits.

Now the U.K. and the Netherlands want their money back.

Some of the money will come from Landsbanki, which is in the process of selling off its assets. But that's unlikely to cover the total — a report by an independent consultant estimated that the banks are likely to come up anywhere from $200 million to $2 billion short. (Our Icelandic-speaking readers can read the the full report here.)

The governments of Iceland, the Netherlands and the U.K. worked out a deal for the Icelandic government to repay whatever Landsbanki's assets don't cover. And last month, Iceland's legislature passed a bill to go ahead with it.

But, in a dramatic move, the Icelandic president refused to sign the bill into law. So now, under Icelandic law, it's up to the voters to decide.

Here are my choices as a voter:

YES: I agree that the government should pick up a tab — brought on by a private bank — that could add up to $2 billion.

That's over $6,000 for each of Iceland's 320,000 inhabitants.

Ouch.

NO: I refuse to pay.

In that case, Iceland's public debt would be downgraded to junk status by the big rating agencies. That would make it more expensive for the government to borrow money and likely slow down economic growth.

A no vote could also derail Iceland's application to join the European Union.

Ouch.

My vote gets shipped off to Iceland in the first week of April. We'll keep this online vote open for a week, until Thursday, March 31st. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.