The following article appears in BBC News and the link
is http://www.bbc.com/news/business-35485876.
Here is an interesting article from BBC about
Iceland's financial crisis, originated from the banking system. The aftermath
of its economy is similar to that of ...Greece, while the punishments a slap in the wrist, in my
view. The banking system was the root of the cause, extending loans with
virtually no equity, businesses operating were relying on credit from the
banking system, with no equity, while the owners were among the largest
shareholders of the banks.
The banks were audited to determine if proper procedures
were followed, and the government took on debt to fund the new banks. The
interesting point is that the government demanded that people would not be
driven to bankruptcy, decrease their debt, and in many cases debt forgiveness.
Furthermore, I did
some research from OECD, http://www.oecd.org/ on financial data of Iceland. One interesting financial
indicator is the debt to equity ratio for corporations. During 2008, the D/E
ratio for Iceland was 13.5. The D/E ratio is a financial leverage, or the
degree to which companies finance their operations from equity. So when this
ratio was 13.5, it means that the outstanding debt is 13.5 times larger than
equity. Greece had 12.2 times outstanding debt to equity for the same time
period.
For 2014 the debt to
equity ratio for Iceland was 8.3 times while for Greece debt 11.3 times larger
than equity for corporations. One other item pertinent issue worth mentioning
is household debt. Household
debt is defined as all liabilities that require payment or payments of interest
or principal by household to the creditor at a date or dates in the future.
Consequently, all debt instruments are liabilities, but some liabilities such
as shares, equity and financial derivatives are not considered as debt.
According
to OECD for 2007 household debt for Greece was 85% of net disposable income,
Italy 82%, France and Germany at 99% of disposable income, Portugal 149% and
Spain at 150%. The data are on a yearly basis. Now let us look at the same
account for 2014. For Greece, household debt was 115% of net disposable income,
Italy 90%, Germany 94%, France 105%, Spain 128% and Portugal’s household debt
at 141% of disposable income.
Bill T. Alexandratos
6984474984
Billnyc60@gmail.com
