The Audit Commission - the "independent watchdog, driving economy, efficiency and effectiveness in local public services" - has admitted to depositing £10m in Icelandic banks this year. The Commission made two deposits - one of £5m in Landsbanki Islands in April 2008 and another £5m in July in Heritable Bank. Several local …
Yummy 15% rate... Yummy...
Well, when you are offered a basic financial product that has twice the return of what the market is you have to stop and think "Is everything here proper, this looks to good to be true".
And indeed it was. This was an entire country's banking system operating a pyramid scheme with the regulator turning a blind eye.
Iceland had their base rate at nearly 15%. If its economy was selfcontained it would have all worked nicely (though with 12%+ inflation). People invest, borrow, etc - everything ticks. However due to our best beloved globalisation exercise people from outside Iceland got a chance to invest and Icelandic banks got a chance to offer them services. They still offered these "competitive rates". However they payed the rates back from _INVESTMENTS_ by new entrants, not from actual economic activity. OK, it may have been hidden by them paying from one pocket and borrowing internationally into the other, but the overall scheme is still same - pyramid in its classic definition: "Payments to old entrants are performed from investment by new entrants".
It is a classic example of what globalisation + lack of regulatory oversight result in. It is the first, however it will not be the last. There are PLENTY of countries with rates that exceed UK by a considerable margin. Similarly, the UK rate is higher than the rate in many places. So we will are likely to see this from both the "UK" and the "Icelandic" side quite a few more times.
Everyone, hail the globalisation!!!
Me coat, the one with - "If it is too good to be true, turn around and walk slowly".
I know we shouldn't laugh, but...
Oh, the sweet, sweet irony.
Who watches the watchers?
April, so that's after anyone with half a brain had heard that Iceland may not be the safest bet around...
All part of the government caused problem.
When services were put out to tender, it was stated by the government of the time that best value did not mean cheapest quote, but the decision had to be justified.
A lot of good people jumped ship and hiring techniques meant more Yes men than not.
The problem with too many Yes men is that if there is no-one to say yes to they are flummoxed and that is now the situation we have both locally and centrally.
Naturally for the not so good, that means it is easier to accept the cheapest in every case, even if the companies do fold halfway through the job. Procedures had been followed and it is someone else's problem. This has permeated right the way through government and local government so investments probably have to also go to the highest return as it is easier than justifying why not. Hence lots of our money is invested in this place.
As someone whos pension was trashed by the Equitable fiasco, I find it ludicrous that people who's job it is to know better have fallen for a similar situation.
Still - no accountability so they are OK.
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