One of the main advantages of the interconnectivity that companies like Twitter and Facebook provides is that marginal news stories which would never have made a national newspaper or 24 news station can spread like wildfire and receive unexpected recognition. This is allowing for a democratisation of the reporting of the news, whereas for the previous century the decision-making process behind deciding what news is relevant has laid in the hands of media moguls and their editors.
So when a Spanish news channel reported that the Icelandic government was forgiving the mortgage debt of many of its citizens, the video was retweeted by many on the Left:
I automatically assumed that such a story would be discussed at length in the British press and media, but when I tried to Google the story there was very little information to be found, apart from a few blogs commenting on the above video.
Unfortunately, my suspicion that the story was projecting its own political views on to the story turned out to be true. Quite how the forgiving of mortgage debt of Icelandic citizens correlates with putting politicians and bankers on 'the bench of the accused' is beyond me, but it is the idea itself which is of central importance.
So, did Iceland forgive the mortgage debt of Icelandic citizens? The IMF had the following to say about the issue:
So the above video report's claim that the Icelandic government has chosen to forgive the debt of the 'majority' of Icelandic citizens is an exaggeration. Still, 15-20% is a considerable number and it will be fascinating to observe what effect the ongoing policy has over in Iceland. One can only hope that the story is more widely reported in the British and American press as it destroys the notion that the only way to get out of this crisis is through austerity.
It is heartening to see that one of the country's worst affected by the crisis has chosen to pursue such an innovative measure to try and improve their economy. That the thinking behind the policy has been endorsed by the IMF surely gives it more credence. There will be those who will rightfully point out that the jury is still out on the Icelandic plans, but one could say the exact same thing about George Osborne's economic policies.
So when a Spanish news channel reported that the Icelandic government was forgiving the mortgage debt of many of its citizens, the video was retweeted by many on the Left:
I automatically assumed that such a story would be discussed at length in the British press and media, but when I tried to Google the story there was very little information to be found, apart from a few blogs commenting on the above video.
Unfortunately, my suspicion that the story was projecting its own political views on to the story turned out to be true. Quite how the forgiving of mortgage debt of Icelandic citizens correlates with putting politicians and bankers on 'the bench of the accused' is beyond me, but it is the idea itself which is of central importance.
So, did Iceland forgive the mortgage debt of Icelandic citizens? The IMF had the following to say about the issue:
The IMF has said that targeted household debt reduction policies - including mortgage write-downs - can deliver significant economic benefits.
The International Monetary Fund made the comments in its latest World Economic Outlook.
The IMF said such policies can substantially mitigate the negative effect of household deleveraging on economic activity.
The report noted the well established link between high levels of household debt run up during a housing boom, and the effect of a high debt overhang on economic recovery...
In the case of Iceland the situation was more difficult, due in part to the much bigger proportion of the population that was affected, and to the wide presence of foreign currency mortgages.
The government and the newly constructed Icelandic banks developed a template to be used in case by case restructuring discussions between borrowers and lenders. The templates facilitated substantial debt write-downs designed to align secured debt with the supporting collateral (i.e bring the loan into line with the value of the house) and align debt service with the ability to repay.
The IMF found that such case by case negotiations safeguard property rights and reduce moral hazard, but they take time. As of January of this year, only 35% of the case by case restructuring applications had been processed. To speed things up, Iceland has introduced a debt forgiveness plan which writes down deeply underwater mortgages to 110% of the households' pledgeable assets.
It noted that only when a comprehensive framework was put in place and a clear expiration date for relief measures announced that debt write-downs finally took off. As of January 2012, 15 to 20% of all Icelandic mortgages have been or are in the process of being written down.
However, it said the jury is still out on Iceland's plans, and said the extent to which Iceland can put its citizens back on their feet and minimise moral hazard remains to be seen.
So the above video report's claim that the Icelandic government has chosen to forgive the debt of the 'majority' of Icelandic citizens is an exaggeration. Still, 15-20% is a considerable number and it will be fascinating to observe what effect the ongoing policy has over in Iceland. One can only hope that the story is more widely reported in the British and American press as it destroys the notion that the only way to get out of this crisis is through austerity.
It is heartening to see that one of the country's worst affected by the crisis has chosen to pursue such an innovative measure to try and improve their economy. That the thinking behind the policy has been endorsed by the IMF surely gives it more credence. There will be those who will rightfully point out that the jury is still out on the Icelandic plans, but one could say the exact same thing about George Osborne's economic policies.
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