In an astonishing move, the nation of Iceland has fought back against an impending economic crisis by deciding to take the controversial (but much appreciated) move of forgiving the mortgage debt of most of its population. In 2008, Iceland was one of the most successful economies in the world, but since then, the same type of crisis that has plagued the rest of the world took root and grew.
The idea may seem shocking to you, but it makes more sense if you really think about it. Just like in America, Iceland had a situation where home values declined and foreclosures were a huge problem. This, of course, caused reverberations in the economy as a whole. However, Iceland determined that most of the “money” that was causing all this panic and confusion was for loans that were held by major banks. Major banks that had already made a relative shitload of interest off of the population.
It’s nothing new in the realm of finance. Interest rates allow banks in the United States to routinely make 2 to 3 times the original value of the home mortgaged in profits. That’s an astounding figure, and one that fits in the category of “just because we can.” After all, Americans can either rent all their lives, or get a mortgage. They end up paying hundreds of thousands of dollars more than their home is actually worth, but they have no choice but to participate in the corrupt system because they simply cannot get a lump sum of money at one time.
So, what you have is a situation where homes are getting foreclosed on, when in reality the bank has already recouped huge portions of the amount already, and can turn around and sell the recaptured home again and make those crazy profit margins all over again. A classic example of the rich getting richer.
Iceland realized that it could give its economy a shot of adrenaline by simply stopping the bullshit. By stepping in and freeing people from unrealistic mortgage expectations, the corrupt bankers were stuck with the bill and the country is on the road to economic recovery.
It’s amazing when you think about it how much in this world revolves around fake money. For example, when a bank forecloses on a home because the resident can no longer afford to pay the mortgage, the bank didn’t really lose anything. It has already profited from interest however far the person was in on the loan, and then they recover the home and sell it again, for even more profit. It is a risk-free investment for banks. If it works out, they make huge profits in interest. If it doesn’t, they just try the same scam again. Was there really money lost here? And why does the economy revolve around it like it does? If the bankers were simply not allowed to charge the rates they charge, how much of a change would that bring about without any money changing hands?
Okay, we reached semi-RANT stage there, but Iceland’s take on things is refreshing. Why not pin the tail on the donkey of the bankers instead of the people for a change?