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Limited Liability Countries

Here's an interesting idea I'm still trying to get my head around, in the realm of "if you can't beat 'em, join 'em".

The people of Iceland have now twice voted not to repay international debts incurred by banks, and bankers, for which the whole island is being held responsible. With the present turmoil in European capitals, could this be the way forward for other economies?

Unlike America, the people of Iceland got a vote on how they felt about being taxed into subsistence until the end of the world (not that long according to AGW alarmists). And they decided that they would act like fat cat company directors and simply declare limited liability - make it some-one else's job to pick up the pieces.

This is a more democratic approach than simply paying the bills, or perhaps nationalizing all foreign ownership.

So why exactly does the New Zealand government have to bail out so many companies? Why do tax payers always ultimately guarantee debts?

An interesting way to upset the status quo, and a worthy topic for musing over all of the ins and outs. Or we could just sit back and pay careful attention to what next happens in Iceland.



Iceland gives a cold shoulder to the debt collectors: Just say No.

Comments

  1. ZT said: "So why exactly does the New Zealand government have to bail out so many companies? Why do tax payers always ultimately guarantee debts?"

    Because the victims of default are indeed the same taxpayers. Real people. Take for instance AMI Insurance and the Christchurch earthquakes. It would be prudent to consider all the options, particularly the impact of certain decisions.

    Of course it doesn't mean the govt must save every failing company as a result of the world economic crisis or acts of God but the cost and impact must be weighed up and I trust this govt has made the right decision in the cases where it has decided to intervene. Effects on economic growth I am sure are at the forefront of its mind.

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  2. As far as I could tell, AMI had enough to cover the claims, but not to continue. That's therefore what should have happened - payout on the claims, and fold.

    Of course, AMI New Zealand probably repatriated most of its profits back to AMI Australia, so again, limited liability for AMI Global wins the day with NZ taxpayers picking up the bill (default unlimited liability). Why not get the dosh from AMI Australia?

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  3. Well I'm not so sure if it's as simple as pay-out and leave/fold. Has everyone put in their claims in at the same time?

    And even without AMI on the scene, what impact would that have on premiums with the remaining insurers? Not positive for the consumer I am sure.

    Are you saying that if AMI New Zealand folded then customers could have simply called upon AMI Australia to pick up the tab?

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  4. Hi Sean. I'm not saying that as such (they have a limited liability company). What I am trying to do is ignore the way things are now and puzzle though what the implications are in running a country as a limited liability entity.

    The fact that companies can fold and directors mostly stay rich, or some companies get so big the government can't let them fold might work the same for countries themselves. Watching America borrow its way to oblivion, and Iceland refuse to be the bank are two very different approaches to the same problem.

    So putting aside the known problems (ie the reality of options operating in the current environment) with this idea I wonder if it opens up any new possibilities to change the current "rules"?

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  5. Actually, your example of AMI was probably a bad example for me :) I think its a mutual company, so not a typical organizational structure.

    I was also thinking of AAMI in Australia - probably not related to AMI NZ at all.

    Anyway, back to the thought of the public having the option of telling the government "no" to bailouts, and what would that mean in practice?

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  6. Hi Zen - as I said earlier I am happy for this govt to determine which companies are worth saving and which are not. This is usually determined by the impact on the taxpayer, and thus on the general economy of course.

    If the sole impact was on a few directors losing a few mil then I would not care, but this is not the case with the companies that the current govt has chosen to save.

    Iceland has a smaller population than ChCh so I am not sure the impacts of its decisions are on a par with those that affect America. They are different directions, yes, but lets compare apples with apples.

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