Iceland´s voting influences "faction" fight in London

An article in the Guardian: "Icesave repayment to UK investors splits Iceland voters", by Simon Bowers , Sunday 3 April 2011, shows that the outcome of Saturday´s referendum, and a possible following court decision on Iceland, is a concern also in U.K. Here is the relevant quote:

"Many in Iceland believe a court judgment could ultimately shatter the assumption at the heart of the Icesave settlement - that, under European law, a state must make up for any shortfalls in deposit guarantee funds. A clear legal ruling on this point would be extremely unwelcome internationally as it would throw a spotlight on huge funding shortfalls in depositor guarantee schemes in Britain, the Netherlands and indeed around the world."

http://www.guardian.co.uk/business/2011/apr/03/icesave-bailout-splits-iceland-voters

 

The matter centers around the effects of the deregulation of the banks, which blended the speculative activities of what was formerly called the "investment banks", with the retail and payment systems of the "commercial banks". The result became the so called "universal banks", with all their current internal conflicts of interest of handling deposits, while at the same time offering speculative investments, that also could be insured in the same house. The old system where these conflicting activities were kept in separate legal entities, was regulated in the U.S. by the Glass-Steagall Act of 1933. This Act was finally taken away 1999 and a similar process allowed the "universal banking" in most of the world.

Before, the depositors were only guaranteed if the put their money in the low risk "commercial banks", but after deregulation also deposits put into speculation became guaranteed. It is therefore the deposit insurance funds became much to small, which now threatens to be exposed internationally, if the Icesave issue goes to court, according to The Guardian.

In the Icesave crash, there was no regulation against speculation with the funds coming from the depositors. All the deposits were just reinstated by the governments of Holland and U.K. Now in U.K. there is an understanding, that this policy of guaranteeing depositors no matter of what the money is used for, is impossible if not the taxpayers shoulder it. It is clear that the Glass-Steagall principles must be reinstated, so the guarantees could be limited to only save the banking activities of the old style "commercial banks".

Also in the U.K. there is a strong faction led by the head of Bank of England, Merwyn King, to cut the "casino" away from the state guarantees. He proposes to impose a policy enforcing internal separation of retail and merchant banking--known as "ringfencing" on its banks. This policy is actually unsufficient as it is not the Glass-Steagall total separation into different legal entities. There are, however, a lot of indications that the Independent Commission on Banking will call for Merwyn King´s policy when it issues its preliminary report April 11.

How hot this issue is, can be seen from the brawl about Barclay´s Bank to leave London for New. Some people in the City want their money no matter what, even if it put unbearable burdens on the British people - and on Iceland.

 

Additional: My comment to the article:

What I see, is that there is a big faction fight in U.K over the Icesave issue. It seems that they are afraid that the implications of the a yes-vote on Iceland, could be disastrous for U.K. We have also picked up some indications of the faction fight, which is very public around the threat of Barclays to move out of London to New York, in reality is linked to the Icesave referendum. In our news slug below, it seems that behind that is the well known policy of Bank of England head Merwyn King to cut the speculation in the banks out of state guarantees.

My own guess is that he is very afraid of a Yes vote, as this would mean that the British deposit guarantee system would have to cover all the depositors in the foreign subsidiaries of the British banks, something that must be enormous compared to the former Icelandic banks.

What I think, is that there are some British factions around Bank of England, that for the survival of U.K., actually want a No-vote in the Icelandic referendum, which could actually be a first step to reinstate fully the Glass.Steagall principles.

Best Wishes, Ulf Sandmark

http://www.larouchepac.com/glass-steagall

Dictionary Definition."Faction"

1. a group or clique within a larger group, party, government, organization, or the like: a faction in favor of big business.

2. party strife and intrigue; dissension: an era of faction and treason.