the fine print and the little people

you know how sometimes a bank will just decide that it didn't like how the original term of its loan worked out and it will just change the deal to something better?
They can do that, it is all in the fine print.

Now they've done it again

and it couldn't happen to a nicer bunch of people.

See, in the debacle that was the end of the Icelandic financial system, a lot of things were tried - kinda stuff I am quite sure will never happen in more mature responsible systems in the developed world.

One thing was the need for capital reserves for the banks as losses started to mount.
The simplest solution was the "circle-jerk loans": bank A deposited $100 million with bank B which deposited $100 million in bank C which deposited $100 million in bank C.
Voila! Banks recapitalized...
But, too obvious, and not all that kosher.

Better, to sell common or preferred stock. Good solid investment paying dividends.
But, how?
Well, lend some preferred customers some money!
They can use the money to invest in sound high rated products, like bank stocks.
They can pay the interest, because the stocks pay dividends! Profit all round!
And, best of all, the loans can be unsecured, just backed up by the stock holdings!
What could possibly go wrong.

Ooops, ah well, y'all can have your stock back.

Well, the banks were put in receivership, which puts an obligation on the new governors to recover assets.
They looked at the little deal, and decided that this was a bit too cushy.
In fact it looked, to the jaded outsider, a little bit like a gift - and an institution in financial trouble cannot gift its assets.
So... fine print time.
The bank is changing the terms of the loan, the stock collateral, not good enough, the loan is full recourse - and the recipient of the loan personally liable in full.
Oh, and they've decided the loans are callable.
Fine print, you know.

80 people have been identified as having received these sweetheart deals, they have 10 days to pay back the loans in full, or a court will seize all their assets.

And you thought this only happened to the little people?

Hope you are taking notes.

PS: so, some of the loan recipients transferred their loans into limited liability corporations with no assets other than the bank shares, so no personal liability, right?
Well, no, probably wrong - there is a legal concept that basically boils down to the idea that if you do something for the sole purpose of evading legal responsibility then the action can be nullified, so the bank receivers will be petitioning to undo the transfers to limited liability corps. If these were pre-existing corps, then the case is harder, but then some might also have actual assets - I mean why would someone set up assetless shell corporations...?

And then, all your Surrey mansions belong to us.