Who Gets Saved Out When Corporate Banks Get Bailed Out? The Shareholders.and Bondholders

Protesters demand the resignation of the government in Reykjavík, Iceland, on November 15, 2008.

Perhaps the best advice about the Cyprus bank bailout fiasco so far was published earlier today at Waging Non-Violence in an article by George Lakey a Professor at Swarthmore College titled 'People of Cyprus: Follow the Vikings!' In it he explains clearly who owns private banks, who benefits from bailouts and, most importantly, how other countries have successfully rejected the pressure of the international banking cartel when their privately owned banks demanded bailouts. After making his case Lakey concludes that "it's time for Cyprus to join Iceland in treating the bullies like, well, bullies."

Again today the corporate owned and 1% dominated lamestream media unanimously continues their hand wringing, fear filled, propaganda campaign designed to keep the investor class mollified and the rest of us hoodwinked. Many of their articles today center on the Cypriot government's latest attempt to save the investor class, this time by instituting a 25 per cent levy on big bank deposits. For sure it's a bit better than their earlier versions but only a bit. In the end all of these contortions, and all of those by the other countries who been victims of the Troika's blackmail, have one thing in common - they are designed to save the bacon of the various bank's shareholders and bondholders.

Lakey's article reminds us that there are other solutions, that other countries like Sweden, Norway and Iceland have faced similar situations in the last few years and didn't genuflect to the mafia. In Sweden, 90 percent of the banking sector experienced massive losses. The Social Democratic Party there decided against bailouts. Instead they nationalized two of the banks and allowed the rest to go bankrupt. Stockholders were left empty-handed. When Norway’s banks did the same, the Labor government seized the three biggest banks, fired the senior management and made sure the shareholders didn’t get a krone.

Iceland though offers the best parallel.  In 2008 when Iceland suffered one of the worst banking collapses in modern history. As the Icelandic economy began collapsing Icelandic activists surrounded the parliament building, banging pots and pans to disrupt the meetings inside - the 'Kitchenware Revolution'. The protesters demanded, and won, the resignation of the government and the governing board of the Central Bank. The new government who represented the working class pledged that there would be no bailouts and the three largest banks failed. Next they devalued the currency in order to support Iceland’s export market. Finally they repudiated the billions of dollars of debt [bonds] their private banks had rung up to international investors.

The results are that 5 years later all 3 countries have healthy happy people with healthy prosperous economies that are the envy of all the genuflectors. In all three cases the shareholders of the private banks and the bondholders who'd bought their bonds got exactly what they deserved - nothing. Shareholders and bondholders are gamblers. The difference is that Las Vegas casino patrons are true capitalists, they gamble their money and they know that if they win they win if they lose they lose. Bank shareholders and bondholders, who are often pension plans and other mutual funds as well as rich individuals, seem to think that capitalism is great when they win, but somebody should bail them out when they lose. What all of 'em need is a good dose of tough Viking love.