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Hundreds of people gather to submit a petition outside the residence of Iceland's President Olafur Ragnar Grimsson in Reykjavik January 2, 2010. Iceland's president said on Thursday December 31, 2009 that he would delay signing an amended bill to repay more than $5 billion (3 billion pounds) lost by savers in Britain and the Netherlands when the island's banks collapsed. Grimsson also told reporters the so-called IceSave legislation was controversial and he would need time before signing it into law. According to the constitution, the issue will have to be put to a public vote if the president rejects the bill. REUTERS/

The efforts of global political officials to rein in the global banking elites are falling flat…

President Obama held a meeting of Wall Street bankers at the White House and heads of several of the biggest banks pardoned their absence with weak excuses …

Gordon Brown and Alistair Darling of the UK imposed a “banker bonus” tax and Jamie Dimon, chairman of JPMorgan Chase threatened to not build new London headquarters on Canary Wharf…

And now European leaders and central bankers are trying to rein in the banks over excessive risk taking … Bloomberg reports…

~~~” European Central Bank President Jean-Claude Trichet, who warned investors against taking on too much risk two years before the financial crisis started, may be about to sound the alert again.

Trichet and fellow central bankers met financial executives in Basel, Switzerland, yesterday after officials signaled concern banks are rebuffing tougher regulation and embracing risk as the turmoil ebbs.

Risk is back in the spotlight as China witnesses a record increase in credit, Goldman Sachs Group Inc. posts record earnings and the MSCI World index of stocks logs a 74 percent gain since March. Federal Reserve Chairman Ben S. Bernanke and Chinese central bank governor Zhou Xiaochuan will attend talks in Basel today of the Group of 10 central banks, which Trichet chairs.

“As liquidity is still abundant there’s certainly a danger that an excessive risk taking behavior returns,” said Carsten Brzeski, an economist at ING Group in Brussels. “However, central banks face a dilemma as they can hardly do more than calling on the banks at the moment…”~~~

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I wonder if people understand what happened in Iceland… essentially several local banks decided to play “global hot money” games and blew up the economy… from Wikipedia …

~~~” The 2008–2009 Icelandic financial crisis is a major ongoing economic crisis in Iceland that involves the collapse of all three of the country’s major banks following their difficulties in refinancing their short-term debt and a run on deposits in the United Kingdom. Relative to the size of its economy, Iceland’s banking collapse is the largest suffered by any country in economic history.^[1]

Here is a small view of the turmoil in October, 2008…

~~~ “… On 6 October, a number of private interbank credit facilities to Icelandic banks were shut down.^[2] Prime Minister Geir Haarde addressed the nation, and announced a package of new regulatory measures which were to be put to the Althing, Iceland’s parliament, immediately, with the cooperation of the opposition parties.^[2] These included the power of the FME to take over the running of Icelandic banks without actually nationalising them, and preferential treatment for depositors in the event that a bank had to be liquidated.^[39] In a separate measure, retail deposits in Icelandic branches of Icelandic banks were guaranteed in full.^[40] The emergency measures had been deemed unnecessary by the Icelandic government less than 24 hours earlier.^{” ~~~}

The major banks in Iceland failed and the people of Iceland are individually on the hook for about $20,000 dollars each to repay Dutch and UK depositors in the Icelandic banks. This people of Iceland are not sure that this is their best solution… it might not be…

The picture above shows hundreds of people around the home of Iceland’s President Olafur Ragnar Grimsson in Reykjavik. They are there to submit a petition to the president. He had said on December 31,  that he would delay signing an amended bill to repay more than $5 billion (3 billion pounds) lost by savers in Britain and the Netherlands when the island’s banks collapsed.

The turmoil in Iceland will likely increase… this is a substantial problem for the country.

The three major Icelandic banks were reckless… and global investors had a role in the turmoil too… taking the kinds of risks that global political officials are warning against now…

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Some are warning of the risks and proposing solutions.

Here is CFTC Chairman Gary Gensler talking about derivatives which is one of the most substantial risks to the global finanical system… (remarks at the Council of Foreign Relations, NYC, January 6, 2010)

~~~ ” … Some opponents of reform argue that derivatives were not at the center of the crisis and should thus not be regulated. I believe, however, that over-the-counter derivatives were at the heart of the crisis. We have all witnessed firsthand the effects that unregulated derivatives had across the entire economy. Everybody in this room put money into a single company that was so interconnected with other financial institutions that its failure threatened the entire system. $180 billion of taxpayer money went into AIG. That’s about $600 from each person in this room.

But the lessons from the crisis go far beyond AIG. While derivatives are intended to help transfer and lower risk in the economy, the financial crisis demonstrated that they also can concentrate risk among a few big banks.

All of the major derivatives dealers – all recipients of taxpayer TARP money – internalize their derivatives trading, retaining significant risk. Those banks have become increasingly interconnected with other institutions.

The market also has become highly concentrated, with five or six big institutions on Wall Street and maybe 15 around the globe dealing in derivative products. Risk becomes like a spider’s web that spreads throughout the economy.

Data collected by the Bank of International Settlements indicates that though approximately 40 percent of over-the-counter derivatives are transacted between two reporting derivatives dealers, the remaining are between those dealers and their financial and corporate customers. When the financial system failed, those risks were externalized to the public in the form of a taxpayer-funded bailout.

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Serious times… serious risks… serious solutions needed…