Tuesday, January 27, 2009
Government Collapses, Yet Icelandic Krona Still Higher Than the Rate Everbank used to Close CDs
You may have read that the Icelandic government collapsed this week. Despite the political turmoil, the Icelandic Krona is still trading significantly higher than the rate at which Everbank used to unilaterally close out several Icelandic Krona "CDs" as recently as last month. According to Forbes, the Icelandic Krona is trading at 160 to the US dollar. This is the offshore rate. In Iceland, the Krona was trading at the even higher rate of 122 to the dollar. In October and again in December, Everbank closed out several CDs at around 250 to the dollar.
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Holding a currency that's still legal tender somewhere has value as long as goods and services can be exchanged for them. Many currencies can additionally be exchanged for other currencies. Examples of this are of course USD, EUR or JPY. The ISK also had this status in a limited way until mid-2008. But its ability to be exchanged against other currencies is irrelevant for us as long as we do not try to exchange them.
The risk we all agreed to assume is that our Icelandic Kronas we had on deposit with Everbank (typically by a 1% purchase cost for the exchange) may potentially be at some point in time worth less than when deposited them. But that's the ONLY risk we agreed to assume! Everbank has made us assume the risk of their investment strategies, as they were unable to either roll-over our Krona deposits or let us take delivery because they did NOT actually HOLD the funds as they indicated Section 2.7.1 Everbank Disclosures, but rather they bought risky "forward contracts". This is FRAUD. I had no intention of exchanging my ISKs until such time as either (1) I felt I could make a profit (2) I would use them in Iceland.
Now, Everbank has several things going for them:
* FUD (Fear, Uncertainty and Doubt) which they are working to enforce by way of bullshit responses, internet shills and the knowledge the people they defrauded have little recourse;
* Seemingly unassailable status as a Bank Institution where customers have no valid route except to try to bring this before a court of law, with more than uncertain results, especially since there's so little common comprehension of the matter, contrasted with a perception it's all "good and dandy".
* No real laws and regulations since their "product" is pretty unique in America but has been wrongly put under the umbrella of far more classical instruments (aka "Certificate of Deposit")
* A general confusion about Iceland's collapse and it consequences for us ISK holders: as long as I have the Kronas, I and only I can decide what I want to do with them. If they become worthless everywhere, I may wish to wallpaper my bathroom with them. But I have just as much right to hold them for, say, Icelandic tourism, or waiting until they return to better international valuation, or even save them for a collection... whatever.
Everbank knows all the above, and even though they are CLEARLY 100% in the wrong and have defrauded their ISK customers, they know we'll have a hard time making good on that fact. That's why I applauded you for having this web site: I can only hope all of their customers would become informed of their deceit. I wish I had known...
I am wondering if its acceptable for us (those who got misled by Everbank and its ISK "CD" gamble) to share the contents of the letters of reply that Everbank has sent us? And, perhaps, put together a wiki or some collaborative document as a rebuttal of the typical "you assumed risks when you bought our CD" song that Everbank has been singing since 2008?
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