Mystery Economic Theater 2010

[ewmayer]

NY Times Opinionator columnist Timothy Egan admits being depressed about our collective haplessness vis-a-vis the Gulf oil spill and trying to cheer himself up by watching perhaps the ultimate "yes we can" festival-film tribute to the American can-do self-image, Apollo 13. That leads to an interesting soliloquy:

How Failure Became an Option

Watching BP’s hapless attempts to contain the nation’s worst oil spill — from blind reliance on a faulty blowout preventer to deployment of a useless 280,000-pound container dome to the bizarre top kill of golf balls and mud — I wondered what happened to American ingenuity. Yes, I know, they’re Brits. But it’s our spill, in our waters, from a well that was cemented by Halliburton, the Texas company that Dick Cheney ran before Big Oil moved into the White House.

Here, this cancer is killing a vast and diverse marine ecosystem, and the best petroleum engineers of the day seem helpless. As “Apollo 13” showed, we don’t do helpless. But with this spill, we are helpless — by deliberate design.

The drilling operation in the Gulf of Mexico was supposed to represent some of the most advanced technology on the planet. It was so advanced that BP and other big oil companies were exempted in 2008 from filing a plan on how they would clean up a major spill. They had no fire department because, well, there would never be a fire, silly.

The reasoning was, BP was too big, too advanced, to fail. Plus, voluntary regulation, the oil companies claimed, was working fine. If that sounds familiar, it was the same argument heard just before the financial crisis. The derivatives and collateralized debt obligations that Wall Street used to make unprecedented profits and then nearly bring down the economy were too big, too advanced for anyone to understand.

But, in both cases, the stage was set for catastrophic failure, and, in both cases, you can pinpoint two likely causes.

First, size. In the search for end-stage oil, companies have had to go deeper and further in ever-riskier gambits to pull this gooey fossil fuel from its ancient slumber. The easy oil era is long over. In the new era, monster rigs such as the Deepwater Horizon go a mile below the surface, and then reach another 20,000 feet below the ocean floor.

The soul of this new machine is unknowable. To slow it down, as BP should have done when trouble first appeared in the line, is too costly. And because of its size and complexity, there are no easy, manual fixes in the event of a disaster. When its fail-safe device, the blowout preventer, did not work, there was no human fallback — not even a plan, as it turned out. Failure was the only option.

Second, consider the consequence of a huge oil leak. If the crew of Apollo 13 had failed, they would have lost their lives. BP had only to look at Exxon. After the worst oil spill in American history, Exxon spent nearly two decades trying to game a legal system that should have brought them to within an inch of their corporate life.

In the end, Exxon prevailed. The Supreme Court of John Roberts, a compliant pet of the corporate world, ruled for Big Oil. The original jury award of $5 billion ended up being around $500 million — a few days’ earnings. Exxon flourished beyond its dreams, reporting in 2008 the largest annual profit for an American company in history.

Similarly, the Wall Street titans who crashed the American economy did not go to jail, or even give up their gilded cocoons. They were rewarded with federal bailouts, and by Christmas of last year, bonuses were back, as if nothing had happened.

It’s not too late to reverse this trend. Congress could pass the Big Oil Bailout Prevention Act, which would raise liability caps in a spill from the laughable level of $75 million to $10 billion. That would sting. There is a real possibility that BP could go bankrupt. That would set off alarms in every boardroom. And somebody on Wall Street might still see the inside of a prison.

My Comment: The above is in some sense a companion piece to another from-the-Gulf-to-Wall-Street moral hazard article by Egan colleague William Cohan, BP’s Mess, and Wall Street’s:

What these two disasters — one financial, the other environmental — prove beyond a shadow of a doubt is that the right incentives no longer exist to get corporate executives to do what they should want to do, and what they must do, to prevent such calamities from happening. The “corporation,” as a legal entity, is very good at attracting capital, providing jobs, maintaining a focus on profitability, creating wealth for the people who work there (especially at the top). It is also very good at shielding executives and boards of directors from liability for their poor own decision-making.

What these two crises reveal is that some corporations and their leaders aren’t very good at making decisions that take full account of the risks they and their companies are taking. It is a truism that human beings do what they are rewarded to do. But the corporate structure these days rewards bad behavior. The problem is that the corporate veil protects the decision makers from the consequences of their decisions and, accordingly, they are encouraged to take asymmetrical risks — huge paydays for them if everything works out; huge consequences for us if they don’t. As Senator Christopher Dodd correctly said in April 2008, during the first Senate hearing about the unfolding financial crisis, “We’ve socialized risk and we’ve privatized reward.”

Unfortunately, the financial reform legislation that Senator Dodd and his colleagues are working so hard on to make law does nothing to change that dynamic. Nowhere in the approximately 1,500 pages of the proposed bill is there anything about making Wall Street executives financially and legally liable for their decisions, as they once were when Wall Street was a series of private partnerships and a partner’s entire net worth was on the line every day. Talk about accountability! But that ethic was lost 40 years ago when Donaldson, Lufkin & Jenrette went public and the rest of Wall Street followed soon thereafter.
...
Although there is no equivalent (yet) of the “spill-cam” in front 200 West Street — the site of Goldman’s sparkling $2.1 billion headquarters building across from Ground Zero — perhaps there should be, because it sure seems that what Goldman and other Wall Street firms are manufacturing every day has proved every bit as toxic as what’s spewing from a pipe at the bottom of the Gulf of Mexico. High-def, please.

[cheesehead]

Originally Posted by ewmayer

How Failure Became an Option

From the soliloquy:

. . .

The drilling operation in the Gulf of Mexico was supposed to represent some of the most advanced technology on the planet. It was so advanced that BP and other big oil companies were exempted in 2008 from filing a plan on how they would clean up a major spill. They had no fire department because, well, there would never be a fire, silly.

The reasoning was, BP was too big, too advanced, to fail.

(Unwarranted faith in unverified perfection of new human inventions. Hubris.)

Plus, voluntary regulation, the oil companies claimed, was working fine. If that sounds familiar, it was the same argument heard just before the financial crisis. The derivatives and collateralized debt obligations that Wall Street used to make unprecedented profits and then nearly bring down the economy were too big, too advanced for anyone to understand.

But, in both cases, the stage was set for catastrophic failure, and, in both cases, you can pinpoint two likely causes.

... or you can go back to David Eyton's 2005 presentation, as I did in post #28 of the BP oil spill thread (http://www.mersenneforum.org/showpost.php?p=216832&postcount=28):

(with my emphasis)

"Finally, the creation of engineering design standards and codes is almost by definition a slow process. It represents the distillation of engineering wisdom gathered over many years, timescales which are incompatible with the current pace of deepwater exploration and development."

That was from a BP guy who was then vice president for BP's deepwater developments in the Gulf of Mexico.

But others at BP had hubris and didn't think they needed to actually demonstrate (to themselves, even!) that they could properly handle a blowout in 5000-foot-deep water.

Unwarranted faith in unverified perfection of new human inventions (deepwater drilling equipment, novel financial instruments, or brand-new computer software) is the common source of many problems.

- - - -

BTW, the rescue of Apollo 13 was very, very lucky. Elsewhere I've linked to an article listing 13 lucky circumstances that enabled the safe return. If any of them had not been true, there would've been no happy ending.

[ewmayer]

U.S. Identifies Vast Riches of Minerals in Afghanistan: The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and BlackBerrys.

The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists. The Afghan government and President Hamid Karzai were recently briefed, American officials said.

While it could take many years to develop a mining industry, the potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable, providing the possibility of jobs that could distract from generations of war.

“There is stunning potential here,” Gen. David H. Petraeus, commander of the United States Central Command, said in an interview on Saturday. “There are a lot of ifs, of course, but I think potentially it is hugely significant.”

The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion.

My Comment: The NYT article also points out the potential negative impacts of the discovery:

the Obama administration is hungry for some positive news to come out of Afghanistan. Yet the American officials also recognize that the mineral discoveries will almost certainly have a double-edged impact.

Instead of bringing peace, the newfound mineral wealth could lead the Taliban to battle even more fiercely to regain control of the country.

The corruption that is already rampant in the Karzai government could also be amplified by the new wealth, particularly if a handful of well-connected oligarchs, some with personal ties to the president, gain control of the resources. Just last year, Afghanistan’s minister of mines was accused by American officials of accepting a $30 million bribe to award China the rights to develop its copper mine. The minister has since been replaced.

Endless fights could erupt between the central government in Kabul and provincial and tribal leaders in mineral-rich districts. ... At the same time, American officials fear resource-hungry China will try to dominate the development of Afghanistan’s mineral wealth, which could upset the United States, given its heavy investment in the region. After winning the bid for its Aynak copper mine in Logar Province, China clearly wants more, American officials said.

My Comment: Similar dynamic going on in Iraq ... China lets the U.S. spend huge amounts of money "pacifying the country", then walks merrily in and bribes local officials in order to secure lucrative natural-resource rights. Nice work if you can get it...curious, though, that - aside from Lithium, which only became a critical mineral with the advent of the notebook computer and the hybrid car - this kind of mineral wealth was not discovered by (say) the Soviets when they occupied the country several decades ago.


Fannie-Freddie Fix Expands to $160 Billion With Worst Case at $1 Trillion: The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

My Comment: Thanks for pointing out the obvious dire consequences of you and your former colleagues` greed and idiocy, asshole. And of course the private housing-finance industry is moribund ... it will remain so as long as Uncle Stupid keeps treating homeownership as a fundamental human right and requiring/encouraging the GSEs and FHA to continue subsidizing the making of poor-credit-risk loans at below-market rates. Barry Ritholtz also has a commentary on this today:

Its not a coincidence that many of these banks are finding the capital to pay back their bailout loans. The Obama administration is continuing one of the more horrific policies of the Bush administration: Using the GSEs as a back door bailout for the rest of the banking sector: These banks are selling their garbage to the GSEs — and according to some anecdotal evidence, are getting pretty close to full boat (100 cents on the dollar) for these bad loans.

Hence, Fannie and Freddie have become a dumping ground for all manner of bad bank loans.

The GSEs have had their own problems over the years — accounting fraud, recklessly chasing market share, lowering loan quality, etc. — but they have now become are now the last stop for every crappy mortgage ever written.

But what I really want to know: Is that $1 trillion a genuine worst case or a laff-riot-BP-style "worst case"?


Europe's Banks May Face Second Funding Squeeze Amid Sovereign-Debt Crisis: European banks at risk of writedowns from the sovereign debt crisis face a funding squeeze that may depress earnings, curb lending and imperil economic recovery in the region.

Investors are shunning bank securities on concern Greek, Portuguese and Spanish bonds held by the lenders will plunge in value. Bank bond sales slowed in May to the lowest since Lehman Brothers Holdings Inc.’s failure in 2008 as the extra yield buyers demand to hold the securities over government debt soared to the highest this year. Firms are wary of lending to each other, depositing record funds with the European Central Bank.

“There is a lot of mistrust,” said Christoph Rieger, co- head of fixed-income strategy at Commerzbank AG in Frankfurt. “Banks are trading with the ECB rather than with each other.”

The central bank is preventing a crisis by providing banks with unprecedented funding. In substituting long-term money with shorter-maturity ECB cash, policymakers are making it harder to wean banks off life support as well as the short-term financing that regulators blame for the credit crisis.
...
Banks are still struggling to borrow even from one another and loans with a maturity of more than one month are “rare and expensive,” making them depend more on ECB funding, Brice Vandamme, a London-based analyst at Deutsche Bank AG, wrote in a note to clients on June 9.

Shut out of the interbank market, lenders tapped the ECB for 122 billion euros of seven-day cash at the central bank’s last weekly tender on June 8. The 96 bidders paid an interest rate of 1 percent on those loans, almost three times the one- week euro interbank offered rate of 0.37 percent. The ECB didn’t identify the banks involved.

Europe’s lenders deposited a record 369 billion euros in the ECB’s overnight deposit facility on June 9, more than in the aftermath of Lehman’s collapse. Deposits have surpassed 360 billion euros for the past week. In the eight years leading up to Lehman’s collapse, euro-region banks deposited an average of about 277 million euros with the ECB.

[apocalypse]

Originally Posted by ewmayer

U.S. Identifies Vast Riches of Minerals in Afghanistan: The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

My Comment: Similar dynamic going on in Iraq ... China lets the U.S. spend huge amounts of money "pacifying the country", then walks merrily in and bribes local officials in order to secure lucrative natural-resource rights. Nice work if you can get it...curious, though, that - aside from Lithium, which only became a critical mineral with the advent of the notebook computer and the hybrid car - this kind of mineral wealth was not discovered by (say) the Soviets when they occupied the country several decades ago.

from http://www.gl.iit.edu/govdocs/afghanistan/Industry.html

Afghanistan has reserves of a wide variety of nonenergy mineral resources, including iron, chrome, copper, silver, gold barite sulfur, talc, magnesium, mica, marble, and lapis lazuli. By 1985 Soviet surveys had also revealed potentially useful deposits of asbestos, nickel, mercury, lead, zinc, bauxite, lithium, and rubies. The Afghan government in the mid 1980s was preparing to develop a number of these resources on a large scale with Soviet technical assistance.

[garo]

Originally Posted by ewmayer

U.S. Identifies Vast Riches of Minerals in Afghanistan: The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

I think this is mostly a puff piece to keep the morale high. Most of this "mineral wealth" was detected decades ago. A lot of it is very hard to extract profitably even if you get peace and agreement of the locals both of which are non-trivial to achieve.

[ewmayer]

Originally Posted by garo

I think this is mostly a puff piece to keep the morale high. Most of this "mineral wealth" was detected decades ago. A lot of it is very hard to extract profitably even if you get peace and agreement of the locals both of which are non-trivial to achieve.

Yeah, it sounded just a wee bit stage-managed, didn't it?

----------------------------

This moron actually won an economics Nobel?

http://krugman.blogs.nytimes.com/201...ssure-markets/

Everyone’s favorite “if debt-financed stimulus doesn’t work, it’s not because it was wrong-headed but because it wasn’t big enough” Keynesian-klown-laureate argues that fiscal austerity clearly does not reassure markets because, hey, Irish CDS spreads are larger than Spain’s. Conveniently ignoring that Spanish CDS spreads were blowing out big-time until the ECB started gobbling up issuance in an attempt to put the genie back into the bottle. And of course the ECB didn't need to take such money-losing emergency steps with respect to Irish sovereign debt because ... wait for it ... Ireland has actually embraced the needed harsh austerity. And there is another crucial difference: Ireland has aggressively de-risked its banking sector by outright-or-quasi-nationalizing much of the sector's toxic assets, that is, liabilities. [Whether they should have more aggressively liquidated the bad banks, Swedish-banking-crisis-style, is open to debate]. In the short run that of course makes Ireland's public finances look worse. Spain on the other hand, is still doing its utmost to delude itself, and the bond markets, and various idiot pundits like Krugman who *never* see the necessity for actually paying down debt of any kind, that all is well. Sure, given the sheer size relative to GDP the Irish banking sector "achieved" prior to the collapse, Ireland may still be well and truly f*cked - but a simple-minded deduction based on highly-selective-timepoint CDS spreads is just silly here. What a ludicrous “argument”.

[only_human]

Originally Posted by ewmayer

My Comment: Similar dynamic going on in Iraq ... China lets the U.S. spend huge amounts of money "pacifying the country", then walks merrily in and bribes local officials in order to secure lucrative natural-resource rights.

And this dynamic sucks: E.g. Africa + Oil + China + War = Darfur

[garo]

Originally Posted by ewmayer

This moron actually won an economics Nobel?

http://krugman.blogs.nytimes.com/201...ssure-markets/

Disagree completely with what you say there. ECB has not revealed which bonds it purchased so it could well have purchased lots of Irish debt. Ireland is a lot worse off than Spain and the austerity is not making it better. Not that Ireland has much of a choice since it is very deep in the hole. Spain is a lot better. As far as the aggressive de-risking is concerned, it put a lot of the risk on the taxpayer but still failed to clean out the banks. They are still utterly and hopelessly insolvent. And the CDS rates and bond spreads did not blow up when the taxpayer was saddled with the risk. Not that CDS and bond markets are any better than the rest of us at predicting the future. They are just gauges of sentiment and we should not substitute a thorough study of the fundamentals for CDS/bond prices.

[ewmayer]

Originally Posted by garo

Not that CDS and bond markets are any better than the rest of us at predicting the future. They are just gauges of sentiment and we should not substitute a thorough study of the fundamentals for CDS/bond prices.

My turn to disagree - when bond investors demand higher yields, a debt-issuance crisis can result, even if the fears which initially spiked rates were overblown. As the saying goes, when you're a debtor nation, you're only ever one debt-auction-failure away from insolvency.

Latest news from Spain is that IMF head Dominique Strauss-Kahn is flying there (remember what that portended when Mr. S-K did similar with Greece recently), and in a debt auction today Spanish 12-month bills spiked 70 basis points above what similar issues yielded last month (from 1.6% to 2.3%). So Krugman's argument that Spanish yields are lower than Ireland's is evaporating before our eyes [the 5-year CDSes he quotes closed today at 247 BPS for Ireland and 248 BPS for Spain] ... and I'd like to hear what he recommends for PIIGS in the stead of austerity ... government spending binges, perhaps? Not so easy to do when you can't print up your own fiat money.


Related News:

Spain, Portugal Must Specify Steps for `Ambitious' Budget Targets, EU Says: The European Union told Spain and Portugal their governments must spell out the budget-cutting measures they plan to implement to reach their “ambitious” deficit targets for next year.

Unrelated, but interesting update on last year`s SocGen "rogue trader" scandal:

Kerviel Tells Court SocGen Received Weekly Reports of His Trading Accounts: Jerome Kerviel told a Paris court that he sent weekly reports to his Societe Generale SA bosses, bolstering his claims the bank knew about the scale of his trades before they led to a 4.9 billion-euro ($6 billion) loss.

[ewmayer]

Mish has a collection of the latest BP-related market stories:

BP Credit Default Swaps Show 39% Chance of Default; BP Announces $20 Billion Oil Spill Fund and Suspends Dividend; Gross Buys $100 Million of BP Debt

As I predicted, the dividend has been suspended...BP shares actually rose on the news, but the price action there is simply too spastic to conclude that anyone bold or foolish enough to be trading the stock has a clue. Fun to watch, though, if you don`t easily get seasick.


Greek Leader Finds Balm for Deficit: Straight Talk: Newly elected and facing a huge budget deficit, Prime Minister George Papandreou arrived in Brussels for his first meeting with European leaders last December with few cards to play.

He might have tried to play for time. Instead, he told them everything. Not only was the Greek deficit twice as high as previously reported, but his country’s finances were also a mess. Corruption was pervasive. Tax evasion, rampant.

“I said, listen, let’s not, you know, beat around the bush,” Mr. Papandreou recalled recently, sitting in his cavernous office at the Maximos mansion, his backpack at his feet, his Kindle on the coffee table. “This is a problem. I will tell you what my view is and what I am trying to do.”

Improbably, perhaps, his strategy worked. Within months, he had managed to secure the bailout he needed while still maintaining good relations with his fellow European leaders — quite a feat, many observers say.

“There is a lot of tension among the players at the E.U. right now,” said Joseph E. Stiglitz, a Nobel laureate economist who frequently advises Mr. Papandreou. “Another personality, and that tension would have blown.”

Perhaps even more improbably, Mr. Papandreou’s strategy of telling it like it is has worked out for him at home, too. Despite imposing a series of harsh cutbacks and telling Greeks they are largely to blame for their own problems, he remains popular with voters who only a few years ago questioned whether he was tough enough for the job.

My Comment: But, but, Paul Krugman keeps saying that fiscal austerity is a bad idea, that it`s counterproductive and that it doesn`t reassure markets. So let`s consider Greece ... would the bond markets have been more impressed by Greece failing to enact credible austerity measures, and as a result failing to secure emergency loans from the EMU and being forced to default on their debt coming due this year?

Also,Krugman makes one additional ludicrous claim here:

...The US Treasury can currently issue long-term inflation-protected securities at an interest rate of 1.75%. So the long-term cost of servicing an extra trillion dollars of borrowing is $17.5 billion, or around 0.13 percent of GDP.

And bear in mind that additional stimulus would lead to at least a somewhat stronger economy, and hence higher revenues. Almost surely, the true budget cost of $1 trillion in stimulus would be less than one-tenth of one percent of GDP – not much cost to pay for generating jobs when they’re badly needed and avoiding disastrous cuts in government services.

My Comment: Notice how Krugman assumes that the US will always be able to keep interest rates low ... but that is really only possible in a persistently deflationary environment, which is quite the opposite of what Keynesian debt junkies like Krugman need for their scheme to "work" - that is, significant GDP expansion, (be it genuine or purely inflationary) of a kind which will magically inflate away the newly-incurred debt. (Notice how Krugman only estimates the costs of *servicing* the debt ... nary a mention of ever actually paying it down.) Yet somehow it is supposed to be possible to inflate one`s way out of debt while keeping interest rates low. Well, you can`t have both without inflation occurring somewhere,and that "somewhere" is that real prices of some major economic component or asset class - usually one the Fed has deliberately chosen to ignore in its inflation estimates, like, oh, say, housing prices - rises significantly faster than incomes ... and this is only in the best-case scenario where the perma-mega-stimulus Ponzi scheme actually has the desired counter-deflationary effect, mind you. So the true price of "successfully" executing such a strategy is [1] an inflation tax on savings, due to the artificially low interest rates, and [2] an asset-price bubble of some kind, which will eventually pop, causing another economic downturn, which (according to the Krugmanite bubbleheads) requires - you guessed it - another round of debt-financed economic intervention. Well, it didn`t work for Japan over the last 2 decades, it didn`t work the U.S. - in fact it blew up rather spectacularly - in the wake of the dotcom-bust recession, and it won`t work this time, either.

[ewmayer]

Interesting connection with the global financial crisis here:

Victory for WikiLeaks in Iceland’s Parliament

At 4 a.m. on Thursday, at the end of an all-night session, Iceland’s Parliament, the Althing, voted unanimously in favor of a package of legislation aimed at making the country a haven for freedom of expression by offering legal protection to whistle-blower Web sites like WikiLeaks, which helped to craft the proposal.

As the Web site Ice News reports, “One of the inspirations for the proposal was the dramatic August 2009 gagging of of Iceland’s national broadcaster, RUV by Iceland’s then largest bank, Kaupthing.”

One of the sponsors of the proposal in the Althing, Birgitta Jonsdottir, told my colleague Noam Cohen in February that Iceland hoped to become “the inverse of a tax haven,” by offering journalists and publishers some of the most aggressive protections for free speech and investigative journalism in the world. “They are trying to make everything opaque,” she said. “We are trying to make it transparent.”
...
It is not yet clear how much help the new legislation will provide to foreign journalists trying to shield themselves behind Icelandic law. As the Nieman Journalism Lab notes:

In his analysis of the proposal — “Fortress Iceland? Probably Not.” — Arthur Bright of the Citizen Media Law Project has noted that in one major test case of cross-border online libel law, “publication” was deemed to occur at the point of download — meaning that serving a controversial page from Iceland won’t keep you from getting sued in other countries. But if nothing else, it would probably prevent your servers from being forcibly shut down.

Monroe Price, who runs a program in comparative media law at the University of Oxford, told The Independent in London, “As an exercise in aspirations, it’s a bold and important endeavor.” But, he added, “if it’s a significant issue like a national security question, then the charging jurisdiction will figure out ways of asserting its power.”

My Comment: Maybe if the U.S. military gets overly annoyed here, they can just stage another Grenada-style "intervention" to "liberate Iceland" and set things right.